Example: buy a 500K condo as an investment. IRS allows depreciation, tax payer gets to depreciate 1/27th per year.

One year later, "book value" is approx 480K.

Subprime implosion! Condo now worth 200K! But book value is 480K! So what's it worth?

It's worth what the market will pay. Now for you accounting geeks out there, yes I am aware we need to consider land cost, as we can't depreciate land, but you get my point.


Book value is only an accounting measure, but not a true measure. The true measure of something is what someone will pay, so that aforementioned condo is worth 200K whether you like it not. On the flip side, assets can sometimes have a worth higher than book value, but this is rare.

With multi-million dollar ships, prices can fluctuate quite a bit, just like the condo nobody wants. Keep this in mind when trying to value a company by its book value. Book value is meaningless ... is an accounting metric, but not a real world metric. Got it?