Investors in the stock market also need to consider different terms and technical terms. Because such issues are very important when investing. What kind of company to invest in? One has to think about how much profit the invested companies can make in the future and how safe the investment is or how much return it will get if the company goes bankrupt, closes or goes bankrupt for any reason. In the stock market, the book value term is considered to be more materialistic.
It also includes the company’s balance sheet and other important financial statements. A company with high book value is considered good. However, along with the book value, investors have to pay attention to many other aspects and issues. However, it is an important tool. Another important term that comes with book value is market value. It is also customary to compare the market value with the book value.
So what is book value?
Book value can also be taken as ‘break-up value’. That is, the value that remains the same in case the company goes bankrupt and goes into liquidation. The book value is used as a calculation method to determine the real value of the company on the basis of assets. Book value is calculated through the company’s balance sheet. In the field of investment, the meaning of book value has expanded a bit. First of all, the total assets of the company (physical assets, investments, funds, real estate, etc.) are calculated.
From which the total liability (loan, tax, debt etc.) is reduced. Generally, intellectual property, copyright, patent and other intangible assets are also deducted from the total assets. Thus, after deducting liabilities and intangible assets from the total assets, the book value of the company is calculated. Similarly, the book value per share is obtained by dividing the book value by the total number of shares of the company.
Book value is properly used in manufacturing companies with substantial physical assets, industry and large machinery. Especially in information technology or digital companies with a lot of intangible assets, book value cannot work properly. In fact, the book value is only a reflection of the company’s equity. In order to be used as an investment decision making tool, it has to be compared with the market value of the company.