What is Net Book Value (NBV)?
NBV, or net book value, refers to the historical value of your company’s assets and how they are recorded. You can calculate net book value by determining the asset’s original cost as well as depletion, depreciation, or amortisation.
It essentially shows how much a fixed asset is currently worth. When you buy a fixed asset, you must record the cost on your balance sheet because you now own it. But what if you want to sell the asset later?
You’re not going to sell it for the same amount you paid for it. This implies that you must reduce the asset’s value through depreciation. Thus, the net book value is the asset’s cost
Net book value has two primary applications:
- It can be used to calculate the total value of your assets. And that value is essentially what shareholders would receive if your company was liquidated.
- It can tell you whether a stock is underpriced or overpriced in relation to its market value.
The net book value formula, looks like this:
Net Book Value = Original Asset Cost – Accumulated Depreciation