It’s everyone’s favorite time of year again – tax time! #ExtremeSarcasm
While this topic would normally be very boring, we do get asked about this a lot at this time of year:
What is the difference between Book Value and Invested Capital?
It’s common to see Book Value or Adjusted Cost Base (ACB) reported on monthly statements and often times clients will compare these values against their current market values to gauge how each investment is performing.
However, book value and ACB’s are ‘tax adjusted’ numbers, only relevant at tax time.
This comparison tells you nothing about how the investment is performing.
To measure performance, we need to compare the current market value against ‘Invested Capital’.
We found this short article to be a pretty good explanation of how this works: