Book Equity
Short definition
Book equity is the sum of share capital and reserves on the balance sheet. It is not market or DCF equity; inflation, goodwill and revaluation create the gap.
Detailed explanation
Covenants often take “equity” from the book; whether goodwill is deducted is contractual. Thin-cap may look at tax-book equity.
P/B is the gap between book and market. Negative book hits company-law going concern and the credit cap separately.
Why it matters for the CFO
D/E and some limits hang on book equity. Inflated goodwill overstates capacity.
How to read it
Book equity is not a cash buffer. Distributable profit, legal reserves and the cash bridge are separate.
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Definitions are educational. They are not investment, credit or tax advice.