By Shawn Hyde, International Society of Business Appraisers (ISBA) –
Every so often I come across a valuation report where the value of a shareholder’s interest in the company has been based on the Book Value of the business. Book Value is likely used because it is easy. It is updated every time the financial statements are updated, so it is always current. But in this article, I want to explore Book Value in more detail.
Book Value is tracked on a balance sheet by an enterprise’s accountants. The current asset section is fairly easy. Cash is equal to the amount of cash owned by the business, and the Book Value of cash is always equal to its Fair Market Value.
Accounts receivable are listed at the amount of cash the company is owed for services or products rendered, usually less an estimated amount for uncollectible accounts. Most of the time this asset’s Book Value is at least close to Fair Market Value. (more…)