Loading the player...
A:

Book value is the price paid for a particular asset. This price never changes so long as you own the asset. On the other hand, market value is the current price at which you can sell an asset.

For example, if you bought a house 10 years ago for $300,000, its book value for your entire period of ownership will remain $300,000. If you can sell the house today for $500,000, this would be the market value.

Book values are useful to help track profits and losses. If you have owned an investment for a long period of time, the difference between book and market values indicates the profit (or loss) incurred.

The need for book value also arises when it comes to generally accepted accounting principles. According to these rules, hard assets (like buildings and equipment) listed on a company's balance sheet can only be stated according to book value. This sometimes creates problems for companies with assets that have greatly appreciated - these assets cannot be re-priced and added to the overall value of the company.

For more on this topic, check out the articles Value By The Book and In Position.

RELATED FAQS
  1. What is the difference between book value and carrying value

    Dig deeper into the definitions of carrying value and book value, and learn to differentiate between their various financial ... Read Answer >>
  2. What is the difference between a company's book value per share and its intrinsic ...

    Book value and intrinsic value are two ways to measure the value of a company.In simple terms, book value is based on the ... Read Answer >>
  3. What does it mean if a share's market value is significantly higher than its book ...

    Learn how investors and analysts compare the market value of stock shares to the book value per common share; discover what ... Read Answer >>
  4. What is the difference between carrying value and fair value?

    Learn about the carrying value and fair value of assets and liabilities, what the carrying and fair value measure and the ... Read Answer >>
  5. If the intrinsic value of a stock is significantly lower than the market price, should ...

    Discover how the intrinsic value and market price of a stock are related and why a stock that appears overvalued may still ... Read Answer >>
  6. What is the difference between Book Value Of Equity Per Share (BVPS) and book value ...

    Understand the differences and similarities between book value of equity per share, book value over equity and the price ... Read Answer >>
Related Articles
  1. Investing

    The Difference Between Book and Market Value

    Book value is the price paid for an asset. It never changes as long as the asset is owned. Market value is the current price at which the asset can sell.
  2. Investing

    Book Value: How Reliable Is It For Investors?

    In theory, a low P/B ratio means you have a cushion against poor performance. In practice, it is much less certain.
  3. Investing

    Investing By The Book

    Buying below book value can provide investors with a safe and consistent investment approach.
  4. Investing

    Using The Price-To-Book Ratio To Evaluate Companies

    The P/B ratio can be an easy way to determine a company's value, but it isn't magic!
  5. Investing

    Understanding Book Value

    Book value is a component in many ratios that investors use to evaluate stocks. Find out how it is calculated and what it reveals about a company.
  6. Financial Advisor

    5 Must Read Finance Books

    We'll look at 5 financial books that are perennial favorites and what has made them so popular.
  7. Personal Finance

    Top 5 Books to Become a Professional Trader

    For people who want to learn how to trade and invest for themselves, there are a wealth of excellent books on trading available to learn from.
  8. Investing

    Evaluating Companies Using Price-To-Book Ratio

    The price-to-book ratio can help investors find undervalued companies.
RELATED TERMS
  1. Book Value

    1. The value at which an asset is carried on a balance sheet. ...
  2. Price to Tangible Book Value - PTBV

    A valuation ratio expressing the price of a security compared ...
  3. Realized Loss

    A loss is recognized when assets are sold for a price lower than ...
  4. Above Water

    1. Refers to the condition of a company's asset when its actual ...
  5. Public Book (Of Orders)

    A book containing all of the buy and sell orders for a specific ...
  6. Trading Book

    The portfolio of financial instruments held by a brokerage or ...
Hot Definitions
  1. Restricted Stock Unit

    Compensation offered by an employer to an employee in the form of company stock. The employee does not receive the stock ...
  2. Operating Ratio

    A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. Calculated as:
  3. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  4. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  5. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center