A company's true book value can make or break business deals.
In the world of business, investments and stock trading, a company's worth is only as good as its financial figures. Financial professionals, auditors and accountants pore over the complete financial records for a company and analyze every last penny to come up with a final value figure known as the tangible book value.
Definition
Book value is the overall worth of assets and investments minus existing debts and liabilites.
The book value is basically a measure of the total debts and liabilities subtracted from the total of all current monetary assets. Book value is often synonymous with the net value. Speaking in terms of assets, tangible assets are those that are physically present and available such as owned property, product inventory, cash reserves, receivables and investments. Intangible assets might include things such as patents, trademarks, copyrights and future earnings potential or expected returns. The tangible book value relies on the overall value of those tangible assets rather than intangibles.
Intangible Tangibles
Real value can sometimes be found even in a company's intangible assets.
In some cases, tangible and intangible assets can be somewhat of a gray area and may not truly reflect a company's total book value. An asset such as a building, a fleet of vehicles or landholdings are clearly tangible, and provided they are owned without debt against them, the assets can be considered part of the total asset holdings. Intangible assets such as licenses and copyrights are not typically considered part of tangible assets. If a deal is made to sell a patent or lease a copyright, however, then that formerly intangible asset is in effect converted into a tangible asset.
Book Value Trading
A company's book value is often a major part of its stock analysis.
The book value is often a major consideration in the stock market. Stock analysts look at the overall net worth of a company and divide that net worth figure by the number of shares available. If the company's stock price is lower than the value per share, that company is said to be trading below book value. Generally speaking, that company would be considered a good investment because it can be purchased for less than its actual computed value.
Reliability
Shareholders and investors have to look at the whole picture, not just the tangible book value.
Although the tangible book value is sometimes used as a measure to determine a company's share value and investment viability, it does not always reveal the entire picture. Even if a company is trading below the current tangible book value, it may be a result of noticeably dwindling profit margins or shareholder mistrust in a company headed for failure.
Personal Book Value
Your book value includes collectible items which you could sell to raise cash.
Individuals have their own book value just as companies and corporations do. Your individual book value can be determined by adding the total of all current assets and subtracting the total of all your debts. Assets include houses, cars, investments, savings accounts and cash on hand. They also include all personal items that could be sold for cash such as jewelry, books, furniture and collectibles. Debts include any outstanding loans on the assets such as a mortgage, as well as any credit card debt or personal debts.
