Net book value (NBV ) is an indicator that is often mentioned when selling, merging or valuing a company. But what does it really correspond to? And above all, what is its role - limited but useful - in the context of a professional valuation, as practiced by XVAL?
1. What is net book value?
A company's net book value is the value of its shareholders' equity as shown in the accounts. It is simply calculated :
NBV = Total assets - Total liabilities
In other words, it's the company's net worth as shown on its balance sheet, once all debts have been deducted. It is a snapshot "at a given moment" of what the associates own, according to the accounting system.
Simple example:
A company has €1,200,000 in assets (fixed assets, cash and cash equivalents, inventories) and €700,000 in liabilities.
→ Its NCV is therefore: €1,200,000 - €700,000 = €500,000.
2. An essential but insufficient basis for calculation
VNC is often used as a starting reference, especially :
- To assess a company's financial strength,
- During certain tax audits,
- In family or legal transfers (divorce, inheritance),
- Or as part of a contribution or liquidation.
But beware: it does not reflect the company's true value. Why not?
- Balance sheet assets may be undervalued (previously acquired real estate, unvalued brands, unrecorded customer base),
- Liabilities may include excessive or poorly calibrated provisions,
- Intangibles (know-how, customer base, contracts, reputation) are often absent or not valued,
- Accounting is conventional, not economic: it measures neither future profitability nor growth potential.
3. Revaluing the balance sheet: a crucial step in asset valuation
At XVAL, when we carry out a company valuationthe NCV (Net Asset Value) is only a starting point. For it to become truly useful, it must be corrected, updated and adjusted. This process is called balance sheet restatement.
a. Asset revaluation
Many assets are recorded at their historical value, which is often far removed from their actual market value:
- Tangible fixed assets: a property purchased 15 years ago for €500,000 may now be worth €1,200,000. It should be revalued at market value, based on comparables or an appraisal.
- Machinery and equipment: certain items of equipment are depreciated to zero in the accounts, but remain in use and therefore retain an economic value.
- Fonds de commerce or droit au bail: often unaccounted for, or at zero residual value, even though they have a real market value. It should be noted that goodwill does not only apply to retail businesses, but to any business as a whole, including all existing contracts and, in particular, the company's volume of business.
- Inventories: must be assessed on the basis of their actual condition (obsolescence, slow turnover, etc.).
- Trade receivables: doubtful receivables must be provisioned, while certain receivables not yet booked can be taken into account if they are justified.
b. Identifying intangible assets
Certain off-balance sheet assets have a significant value:
- Brands, patents, licenses: sometimes absent from the balance sheet even though they generate sales.
- Customer base, recurring contracts, local or digital brand awareness: these are all invisible assets that can be put to good use.
- Know-how, in-house technologies, software developed in-house: often unaccounted for but essential to future profitability.
At XVAL, these factors are the subject of specific analysis, particularly in the consulting, software and high-profile craft sectors.
c. Adjustment of liabilities
The debts entered must also be corrected:
- Social security and tax debts to be regularized, sometimes forgotten or not yet accounted for.
- Provisions for risks: some may be deemed excessive, others underestimated.
- Off-balance sheet commitments: leasing, guarantees, personal sureties, etc. must be included in the risk analysis.
In short, a restated balance sheet has little to do with simple net asset value. It allows us to reconstruct an economic asset value, much closer to market reality.
4. Net book value in business valuation: an anchor, not an end in itself
Some valuation methods include the NCV, in particular :
- The pure patrimonial method (useful for holding companies, real estate companies and companies with little activity),
- The asset comparison method (commercial real estate, camping sites, hotels, etc.),
- Combined methods, weighting earnings, assets and prospects.
But in the majority of cases - SMEs, start-ups, service companies, VSEs - the NCV greatly underestimates the real value, because it does not take into account :
- Potential for future profitability,
- Intangible capital,
- Themanagement team or key contracts.
5. XVAL: our expertise beyond accounting figures
At XVALwe carry out over 3,500 valuations a year. Our method is always based on a personalized analysis, combining :
- Rigorous accounting restatement,
- Comparative sector study,
- Multi-criteria financial valuation,
- And a neutral, pedagogical approach, useful in the event of transfer, conflict, transmission or litigation.
Net book value is only a benchmark, never a truth. The true value of a company is built on analysis, hindsight and method. To find out more or request a valuation quote :
