Net book value

Definition

Net book value (NBV) is the value of a fixed asset in the accounts after deducting accumulated depreciation from its original cost. It is what the asset is carried at on the balance sheet.

In plain terms

Buy a £20,000 machine, depreciate £4,000 a year, and after two years its net book value is £12,000. It is an accounting figure, not necessarily what the asset would fetch if sold.

Why it matters for your company

Net book value shapes your balance sheet's asset total, but do not confuse it with market value — a fully depreciated asset can still be working and worth something. When you sell an asset, the gap between sale price and NBV is a profit or loss on disposal.

In practice

Picture a small limited company that bought a delivery van some years ago and has been depreciating it steadily ever since. Its net book value sits in the fixed asset register and flows through to the balance sheet, quietly falling each year even though the van still does its job every day. The director rarely thinks about the figure until it surfaces somewhere it matters: preparing statutory accounts, agreeing a valuation with an accountant, or negotiating a sale of the vehicle or the business itself.

At that point the gap between net book value and what a buyer would actually pay becomes very visible. A van that has been depreciated hard may have a low net book value but still fetch a reasonable price on the second-hand market, producing a profit on disposal. Equally, a specialised piece of kit can hold a healthy net book value while having little resale demand at all. Neither situation is unusual — it simply reflects that depreciation follows an accounting schedule, not a live market.

How lenders read it

When a lender looks at a company's balance sheet, net book value tells them how assets have been accounted for over time rather than what those assets could realistically be sold for. A rising or falling total on its own says relatively little without context — a falling figure could reflect a company running down its estate, or simply steady, planned depreciation on assets that remain fully productive.

Fixed asset registers that are kept up to date make this easier to interpret, because they show the story behind the total rather than a single number in isolation. Directors who can explain the difference between what an asset is carried at and what it is actually worth tend to have an easier conversation, whatever that conversation is about — a sale, a refinancing, or simply better internal reporting via the balance sheet.