Book Value in Accounting:

The value of an asset shown on a balance sheet. This will usually be the original price of the item less depreciation.

Book Value in Investing:

This is the sum total of paid-in capital (e.g. stock sales), donated capital, and retained earnings. It is the theoretical cash value of the company if everything were to be liquidated today. It can be useful to compare a company's book value to its market cap to determine if the stock is overpriced. For example, if there are a total of 10 million shares of a stock selling for $100 each, it's market cap is one billion dollars. If the book value is only twenty million dollars, the company may be overvalued. The relation between market cap and book value varies by industry. Technology and internet stocks (such as Amazon or Lucent) usually have market caps larger than their book values. A well-established, older, slow-growing firm in a stable industry (such as Procter & Gamble or Altria) is more likely to have a smaller gap between book value and market cap.

Book value can be calculated by adding up all assets on the balance sheet then subtracting liabilities, preferred stock, and intangible assets (e.g. patents).

Book Value is also known as Stockholders' Equity or Stockholder's Equity, and it appears under those names in some financial calculations. In some countries, book value may be called net asset value.

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