armember-membership domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home1/wanrru6iyyto/public_html/wp-includes/functions.php on line 6114ARMember domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home1/wanrru6iyyto/public_html/wp-includes/functions.php on line 6114There are several definitions<\/a><\/strong><\/span> associated with the term \u2018Book Value\u2019 and depending on the context of its use, determines the correct definition and proper use. The three primary uses of the term are as follows:<\/span><\/p>\n From the above different uses, the reader would infer that the term is broad in scope and meaning. In reality, it is actually narrow in meaning. ‘Book Value’<\/strong> is simply the accounting value of the particular asset. Or, it is the original value of the asset paid at the time of purchase less any utility consumed which is also another way of saying the accounting value. Any time the term is used, the statement made should include a reference to the particular use or category as identified above. Examples of setting the proper context include:<\/span><\/p>\n Remember, when this term is used, the term is a component of a statement referring to one of the three primary areas of business as identified above. Each of the sections below further elaborate on the definition and the proper context related to the three primary uses as identified above.<\/span><\/p>\n The most commonly used version of book value relates to the context of the overall value of a company. This is frequently asked in reference to stock investments and analyzing businesses. The requester wants to know what is the accounting value (that which is recorded on the books) of a particular company. It is simple math:<\/span><\/p>\n TOTAL ASSETS LESS TOTAL LIABILITIES\u00a0<\/strong>\u00a0OR \u00a0to keep it simple: EQUITY<\/strong><\/span><\/p>\n The answer is no different when talking about a small business. How much equity is there in the company; in effect, what is the book value? Seems rather simple doesn\u2019t it? Well, it gets a lot more complicated because there are many variations to the question and the associated answer. Let\u2019s look at some of the variations:<\/span><\/p>\n Many companies, especially those with a few years of operations under their belts, have physical and nonphysical assets on the balance sheet. Nonphysical assets are referred to as intangibles.\u00a0 Intangibles can include copyrights, patents, and the purchase of goodwill. These types of assets are paper assets and not easily tradable nor is there much of a market for them. Often a requester of information wants to know \u2018What is the tangible book value of the company?\u2019 The key is that copyrights, patents, goodwill and other forms of intangible assets are usually amortized over time. Other types of paper assets such as cash, receivables, investments, prepaid expenses are not amortized and are included in the tangible calculation for this variation of book value.\u00a0<\/span><\/p>\n When book value is used in reference to tangible book value, the answer is: ALL ASSETS LESS INTANGIBLES<\/a><\/strong><\/span> LESS LIABILITIES. Or a different method is to take EQUITY and subtract intangibles. To help you further understand this equation, please read<\/span> How to Read the Balance Sheet – Simple Format<\/span><\/a><\/span>.<\/strong><\/span><\/p>\n Now let\u2019s complicate the formula just a little further. In this variation, someone is not interested in the total company value, but is interested in what one single share of stock is worth on the books of the company. The answer isn\u2019t hard to calculate, it is simply: Corporate Value divided by the number of shares sold. If a corporation is worth $283,200 and the owners have recorded 14,000 shares sold, the answer is $283,200 divided by 14,000 shares or $20.23 each.\u00a0<\/span><\/p>\n Why would this be important?\u00a0 Well, in the publicly traded world, it is not uncommon for a share price on the open market to dip below the book value! It does happen. There are many factors that affect the publicly traded price and sometimes buyers shun a particular company due to risk. The stock price heads downward and there you go, it dips below the book value per share. This happens more frequently in the lower level markets such as the Over the Counter (OTC) markets and the Penny Stock Market. \u00a0<\/span><\/p>\n But as a student of this term, you need to remember that when this variation is used, it is not uncommon for the information to be conveyed in full book value format and not in the tangible format. A more prudent investor would want to know: \u2018What is the price per share based on tangible value? Do you see how this can have a significant bearing in an investor\u2019s decision model?\u00a0<\/span><\/p>\n This variation is used in the small business world in the legal documents between owners or shareholders. Several clauses in these agreements bind the owner\u2019s to some form of compliance, sale or transfer of ownership, at a particular value. The most commonly used term is book value per share. For a small business owner, understanding its definition will help you to negotiate a better agreement between you and other parties.<\/span>\u00a0<\/span><\/p>\n Sometimes, when the requester is asking for the book value of the company, he is really interested in the accounting value in total and not necessarily on a per share basis. He may be looking at the working capital position of the business. Remember, working capital is<\/span> current assets<\/span><\/a><\/strong><\/span> less<\/span> current liabilities<\/span><\/a><\/strong><\/span>. In many small business operations the long term debt is similar in value as the fixed assets as often long term debt is used to purchase<\/span> fixed assets<\/span><\/a><\/strong><\/span>. Therefore, the equity position of the small business is almost equal to the working capital. When a knowledgeable individual is looking for this kind of information they\u2019ll follow up with the request for book value of current assets and the book value of the current liabilities. They may just ask for the current ratio. But the key to all this is how the question is asked.\u00a0<\/span><\/span><\/p>\n In addition to how the question is asked, it is being asked under certain conditions such as investing in the business, possibly buying the business or to compare one similar business to another.\u00a0<\/span><\/p>\n Remember, book value is merely the accounting value, that which is recorded to the financial statements, specifically the balance sheet.\u00a0<\/span><\/p>\n The stock, corporate or balance sheet value is more of a macro level (total) book value. However, information may be sought at the group or single asset level for the company. In this situation, the information sought is designed to understand the accounting position of the particular group of assets or single line item on the balance sheet. I\u2019ve often heard clients ask me for the book value of particular asset like a truck or the book value of receivables. \u00a0<\/span><\/p>\n How is this calculated? The fastest method is to look at the balance sheet at the particular group of assets and use the accounting value provided. The best example is receivables. In general receivables are calculated as a sum of all the accounts added together less an estimated amount for bad debt. Thus the amount on the balance sheet assumes there will be some non-payment of what is owed to the business from regular customers. This is referred to as the book value. However, another term is proper – CARRYING VALUE.<\/strong>\u00a0\u00a0<\/span><\/p>\n Think of carrying value as a subset of book value. The term is specific to identifying the book value (accounting value) for a particular group of assets or a specific asset. In the business world, the proper use is to ask \u2018What is the carrying value of the receivables?\u2019 Or, \u2018What is the carrying value of the forklift?\u2019 Use carrying value when asking about the book value of a group of assets or a particular asset.\u00a0<\/span><\/p>\n When asking about the carrying value or book value of a specific<\/span> fixed asset<\/span><\/a><\/strong><\/span>, the reader may have to look at the respective schedules related to the group of assets in question to find the answer. Continuing with the forklift from above, within the grouping of equipment on the balance sheet is a schedule (usually a spreadsheet) that identifies the asset and the accumulated<\/span> depreciation<\/span><\/a><\/strong><\/span> to date netting to accounting value on the books of record.\u00a0 The following is an example of this presentation format for warehouse equipment:<\/span><\/span><\/p>\n Balance Sheet Group:\u00a0 Equipment<\/strong> From this report, the carrying value of the forklift is $8,420. Note something important here, the carrying value does not mean the fair market value. There is a big difference between book value (accounting value) and the fair market value for many assets in business. As a reader of financial statements, most of the current asset book values are fairly close to fair market value. Think of cash, it is exactly fair market value. However, receivables may not be as sometimes customers do not pay their bills, so there is risk there. But for most current assets, the risk is relatively low, for fixed assets such as warehouse equipment and more specifically the forklift, there is a large financial gap between the book balance (book value, carrying value) and the fair market value.<\/span><\/p>\n Not only are assets used with the term book value or carrying value, liabilities are also quantified on the books and the value is referred to as the book value. Often those involved in the bond industry will use the term carrying value and not book value. This is mostly out of tradition than recognition of the difference related to the terms book and carrying value. For your understanding, just remember, both book and carrying value refer to the accounting value on the books of record for the particular asset, group of assets, a liability or a group of liabilities.<\/span><\/p>\n On the personal level all of us have investments, some more than others. Investments range from purchase of stock to real estate. The most common term for investments is securities. These investments are most often found on our personal set of books and frequently are in the retirement accounts section of our personal assets. They are also found in business and are often located in the current assets section of the balance sheet.\u00a0<\/span><\/p>\n This form of value is the most common discussion point between businessmen in general conversation. Mostly the focus is on performance (return) of a particular asset. To gauge the security\u2019s return percentage, the requester of information needs to understand what was paid for the particular investment. A house flipper talking with another house flipper will ask \u2018How much do you have in the property?\u2019 – which is a polite way of asking for your book value in the investment.\u00a0<\/span><\/p>\n When referring to investments and desiring to understand the book value, the correct term to use is BASIS<\/strong>. This term comes from the tax code and since investments are documented differently for tax purposes, the IRS separates these assets from others and uses the term of basis to identify the accounting value related to the particular investment. Unlike carrying value, most investments do not have depreciation or amortization associated with calculating the basis. This is not an absolute statement. When referring to real estate, there is often depreciation involved and so, therefore, you must adjust the purchase price by depreciation taken to date. There are some other investments that do adjust their purchase price by depreciation and\/or amortization to determine the basis. But for the purpose of this article, I\u2019m going to keep it simple and refer to investments as the more widely accepted definition of stocks, bonds, annuities, insurance instruments, and other publicly traded instruments commonly found on the stock exchanges.<\/span><\/p>\n Basis in an investment is calculated as the original purchase price paid plus any fees paid to acquire the investment. Common fees paid include broker fees, assessments, recording costs, and any interest paid to acquire the particular investment. There are a multitude of types of fees and the list can go on for a quite a few pages but in general they are some form of legal costs to have outright title to the investment. In addition to the original purchase price and fees, time related costs should be added to the investment to determine the actual book value (basis) of the investment. Examples of time related costs include interest on the investment if financed, taxes paid to maintain the investment, and even the annual brokerage maintenance fee prorated to your particular investment among all investments held by that broker. All of this is added together to calculate the current basis of your investment.\u00a0<\/span><\/p>\n For sophisticated businesspersons, use the term BASIS when referring to investments if desiring to understand the book value (accounting value) of the investment.\u00a0<\/span><\/p>\n There are many different mistakes made when using the term book value. Here are the most common (not in any particular order) and how to avoid making them:\u00a0<\/span><\/p>\n Book value is simply the accounting value as stated on the balance sheet as of a given date. Book value has many different uses and based on the context of the conversation determines which version of the term is used.\u00a0 When discussing the value of the business or the value per share of a corporation, the proper term to use is book value. This is merely the total assets less liabilities which is also known as the equity of the business. However, it is not uncommon for the term to be defined as the tangible book value which is the equity of the business less the intangible assets (goodwill, patents, copyrights etc.).\u00a0<\/span><\/p>\n When referring to a group of assets or a particular asset the proper term to use is carrying value which is a variation of book value. Again, just like book value in the aggregate, carrying value is the accounting value as stated on the balance sheet.\u00a0<\/span><\/p>\n If you are interested in the book value of an investment, the best term to use is basis. Basis is the amount paid to date to have legal title or some form of rights to the respective security. Basis is a more refined level of the term book value. But in all cases, it is acceptable to use the term book value. However, I suggest that you should use the variation of the term based on the context of the conversation. This alerts others that you fully understand the term book value and how it should be used in conversation. More importantly, it moves you from being perceived as a novice businessman to a sophisticated entrepreneur.\u00a0<\/span><\/p>\n Finally remember not to make the mistake of using fair market value or an aged balance sheet value when answering the question. Always answer the value question with a date identifier to let the listener know you understand what you are talking about. Act on Knowledge.<\/strong><\/span><\/p>\n\n
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Stock, Corporate Value or Balance Sheet<\/strong><\/span><\/h2>\n
Tangible Value<\/strong><\/span><\/h3>\n
Book Value per Share<\/strong><\/span><\/h3>\n
Working Capital<\/strong><\/span><\/h3>\n
Fixed Asset\/Liabilities<\/strong><\/span><\/h2>\n
\n<\/span>Sub-Grouping:\u00a0 Warehouse Equipment
\n<\/span>Date: 12\/31\/12
\n<\/span>Item \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Acquisition \u00a0 Purchase\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Prior \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Current \u00a0 \u00a0Accum \u00a0 \u00a0 \u00a0Book
\n<\/span>#\u00a0<\/span>\u00a0 \u00a0 \u00a0 Descrip\u00a0<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0Date\u00a0<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Price<\/span>\u00a0 \u00a0 \u00a0\u00a0Method<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Depreciation<\/span>\u00a0 \u00a0 \u00a0Deprec<\/span>\u00a0 \u00a0\u00a0Deprec \u00a0\u00a0<\/span>\u00a0Balance
\n<\/span><\/span>17 \u00a0 \u00a0Ramp Sys\u00a0 \u00a0 \u00a002\/18\/07 \u00a0 \u00a0 \u00a0 \u00a08,419\u00a0 \u00a0 \u00a0SL\/7 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a04,310\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a01,203\u00a0 \u00a0 \u00a0 \u00a05,513 \u00a0 \u00a0 \u00a0 2,906
\n<\/span>51 \u00a0 \u00a0Forklift \u00a0 \u00a0 \u00a0 \u00a0 07\/02\/10\u00a0 \u00a0 \u00a0 13,286\u00a0 \u00a0 \u00a0Modified SYD\/5\u00a0 \u00a0 \u00a02,744\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a02,122\u00a0 \u00a0 \u00a0 \u00a04,866 \u00a0 \u00a0 \u00a0 \u00a08,420
\n<\/span>82 \u00a0 \u00a0Staging Sys\u00a0 11\/11\/11\u00a0 \u00a0 \u00a0 \u00a044,200\u00a0 \u00a0 \u00a0SL\/7\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,052 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 6,314\u00a0 \u00a0 \u00a0 \u00a07,366 \u00a0 \u00a0 \u00a036,834<\/span><\/span><\/p>\nInvestments<\/strong><\/span><\/h2>\n
Common Mistakes<\/strong><\/span><\/h2>\n
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Summary – Book Value<\/strong><\/span><\/h2>\n