How is book value calculated?

Book value is a financial metric used to assess a company's net asset value, measured at the cost of its assets minus its liabilities. The correct method for calculating book value is to take the total value of a company's assets and subtract the total value of its liabilities. This provides a clear picture of what shareholders would receive if the company were to liquidate its assets and pay off its debts.

In this context, the net value of assets minus liabilities reflects the actual equity that shareholders have in the company. It represents the fundamental value of a business based on its historical cost accounting and is often used in investment analysis as a measure of the intrinsic value of a company.

Other options do not accurately describe the calculation of book value. Market value minus liabilities does not provide a reliable measure because market value is based on current trading prices, which can fluctuate significantly and not reflect the actual financial health of the company. Dividing assets by total equity does not yield a book value either; it produces a different ratio that may be useful for other analyses. Lastly, revenue minus expenses relates to a company’s profitability over a period and does not pertain to asset valuation. Therefore, focusing on the net value of assets after accounting for liabilities is the accurate approach to calculating book