What is the difference between book value and salvage value

Book value and salvage value are two vastly different measures of value. Book value attempts to approximate the fair market value of a company, while salvage value is an accounting tool used to estimate depreciation amounts of tangible assets and to arrive at deductions for tax purposes.

Book value (also known as net book value) is the total estimated value that would be received by shareholders in a company if it were to be sold or liquidated at a given moment in time. It calculates total company assets minus intangible assets and liabilities. Book value is a metric that helps analysts and investors evaluate whether a stock is overpriced or underpriced when compared to the company's actual fair market value, an estimate of the price for which the company could be sold. Net book value can be very helpful in evaluating a company's profits or losses over a given time period.

Salvage value is a tool used in accounting to estimate the value that a tangible asset can be sold for when it has reached the end of its useful life – in short, what the asset can be salvaged for when a company can no longer make viable use of it. Salvage value can sometimes be merely a best-guess estimate, or it may be specifically determined by a tax or regulatory agency, such as the Internal Revenue Service (IRS). The salvage value is used to calculate year-to-year depreciation amounts on tangible assets and the corresponding tax deductions that a company is allowed to take for the depreciation of such assets.