Adjusted book value
Also written ABV · Price/Adjusted book value
Fair value of a company's assets minus the fair value of its liabilities, factoring in off-balance-sheet items — used to value non-banking financial companies (NBFCs).
In plain language
Plain book value uses the accounting figures already sitting in the balance sheet — assets at historical cost, less depreciation.
Adjusted book value goes further. It restates assets and liabilities to what they are actually worth today, and it pulls in items that never appeared on the balance sheet at all, such as guarantees and other contingent exposures. For a lender, where the real risk often sits off the balance sheet, that difference can be large.
How it works
The workbook defines it plainly: "Adjusted book value (ABV) refers to fair value of asset minus fair value of its liabilities. As compared to book value, ABV factors in off balance sheet items as well. This metric can be applied to value NBFCs."
The reason NBFCs need this treatment is specific to how they operate: their main asset is a loan book, and its accounting value can diverge sharply from its true worth if bad loans are under-provisioned, and they often carry meaningful off-balance-sheet exposure — guarantees, securitised assets sold with recourse — that plain book value never captures. Price/Adjusted book value applies the same multiple logic as Price/Book value, but to the more honest, fair-value denominator.
A worked example
An NBFC reports a loan book of Rs 5,000 crore at book value, with reserves and share capital giving it a reported net worth (book value) of Rs 1,100 crore.
An analyst reviewing the loan book at fair value finds that provisioning against stressed loans is inadequate by Rs 150 crore, and discovers Rs 300 crore of guarantees extended on securitised loans that never appear on the balance sheet at all.
Book value of equity Rs 1,100 crore
Less: additional provisioning needed (Rs 150 crore)
Less: off-balance-sheet guarantees (Rs 300 crore)
Adjusted book value Rs 650 crore
If the NBFC trades at a market capitalisation of Rs 1,650 crore, that is Price/Book value of 1.5x on the reported number — but Price/Adjusted book value of 2.5x on the more honest one. The stock looks far more expensive once the off-balance-sheet items are brought in.
Why NISM asks about it
Chapter 10.8.4 (Other metrics) introduces Price/Adjusted book value specifically for NBFCs, immediately after Price/Embedded value for life insurers. Expect a question asking which valuation multiple is used for which financial-sector business — embedded value for insurers, adjusted book value for NBFCs, plain book value for banks generally.
Common exam traps
- Adjusted book value is not the same as plain book value. The workbook elsewhere says Price/Book value is generally reliable for financial companies because their assets are largely monetary — but for NBFCs specifically, it calls out the need for the adjusted version, precisely because of off-balance-sheet exposure that plain book value misses.
- Do not apply Price/Adjusted book value casually to manufacturing or technology companies — the workbook ties it specifically to NBFCs, where the loan book and off-balance-sheet exposure make it meaningful.
Where this is taught
Free preparation for NISM Series XVRelated terms
- Book valueA company's net worth — equity capital plus reserves — divided by its outstanding shares, the accounting value each share would theoretically get if the company wound up today.
- Price to Book ValueShare price divided by book value per share — how many times the accounting net worth of a company the market is willing to pay.
- Relative valuationValuing an asset from the prices of comparable assets rather than from its own cash flows — quick, intuitive, and dependent on whoever set those comparable prices being right.
- Off-balance sheet itemAn asset, liability or exposure that does not appear on a company's balance sheet, such as certain leases, contingent liabilities or derivative contracts disclosed only in the notes.
- Embedded valueFor a life insurer, the present value of the expected net future cash flow — adjusted for probability — from the policies currently in force, used as the base of a Price/Embedded value multiple.