What Is Carrying Value


The concept of what is carrying value has different definitions in many fields of business. For the purpose of this article, we will concentrate on accounting and valuing assets. Accounting defines what is carrying value as the depreciated value less the amount paid for it on a purchase or sale of a certain type of asset. In accounting, capital gain value is the amount of capital gain less the amount of capital gain taxes at the current date to the carrying amount on an accounting balance sheet. For fixed assets, the definition of what is carrying value is equal to the adjusted gain/loss less the cost of capital immediately before tax, less any net capital gain/loss.

A financial statement includes three basic sections: elling, finance and performance. Under the heading of costing, assets are classified according to the relationship they have with their market and economic terms. The categories include tangible fixed assets, identifiable intangible assets and property and equipment. By classifying assets, one can determine their current carrying values and their potential futures values.

The term ‘carrying values’ is derived from the word cost. It is a term used to represent the future selling price less a present value of cash flows. So far so good. Now how does an accounting carry value get calculated? A simple way is to add the cost of capital to the current value of an existing asset. It is also possible to calculate it by multiplying the cost of capital by the net worth of the business.

Sometimes, questions come up as to what is carrying value for some particular assets. It is not always easy to give a precise answer. One may be tempted to say, well, these assets are used once and they do not represent a ‘recession proof’ investment. The question to ask here is: when will they be used again? If the company is not liquidated in the course of its operation, what is the likelihood that it will be sold or that any of its assets will be repossessed in the course of operations?

Once the question comes up, the next step is to consider the effect of what is carrying value on ownership. For example, what if the company is no longer trading and all its assets are already owned by other companies? Is it still worth anything? That can be answered using economic theory.

In essence, economic theory says that the carrying values of any given asset are equal to the replacement value of the same asset in terms of future cash flows. If it were true that what is carrying value is equal to future cash flows, then any company with adequate resources should be able to achieve its stated economic goal. With all this said, there are questions that arise. Can a company with poor capital become as successful as one with excellent capital? If it cannot, how is it possible for some companies to have superior capital and capabilities while others are so poor?

The answer to what is carrying value ultimately boils down to three factors. First, it is the price per share or PPC. Second, it is the total return on investment or ROI. And third, it is the income impact on shareholder or owners. It’s important to remember that the stock market is a voting machine – each share of stock can either be bought or sold based on whether it is considered “green” or “put” and therefore, what is carrying value is determined through what is being traded.

There are several indicators on which what is carrying value can be calculated. First, it is the ratio of current assets to current liabilities and second, it is the expected rate of return on equity. As investors, it’s important to know what is carrying value before buying, selling, or trading a stock. Knowing what is carrying value helps managers make sound decisions regarding the management of their company’s assets and liabilities. Managing the P/L of a company is not easy, but understanding what is carrying value helps a company’s financial management in making the right moves.