Definition of tangible book value per share (TBVPS)
What is tangible book value per share (TBVPS)?
Tangible Book Value Per Share (TBVPS) is a method by which the value of a company is determined on a per share basis by measuring its equity without including any intangible assets. Intangible assets are those that lack physical substance, which makes their valuation more difficult than that of tangible assets.
TBVPS is similar to price at tangible book value (PTBV).
Key points to remember
- Book value per share (TBVPS) is the value of a company’s tangible assets divided by its outstanding shares.
- TBVPS determines the potential value per share of a company in the event that it needs to liquidate its assets.
- Assets such as tangible fixed assets are considered to be tangible assets. Intangible assets, such as goodwill, are not included in the calculation of TBVPS.
- One of the criticisms of the validity of TBVPS is the lack of accuracy in accounting for a company’s tangible assets.
The formula for TBVPS
TBVPS=Total number of shares outstandingTotal tangible fixed assetsor:TBVPS=tangible book value per share
Understanding tangible book value per share
The tangible book value (TBV) of a company is what common shareholders can expect to receive if a company goes bankrupt, thereby forcing the liquidation of its assets at the cost of book value. Intangible assets, such as goodwill, are not included in the tangible book value because they cannot be sold on liquidation. However, companies with high tangible book values ââtend to offer shareholders greater protection against losses in the event of bankruptcy.
Tangible book value per share therefore focuses only on the value of an organization’s tangible assets, such as buildings and equipment. Once the value of the tangible assets is determined, this amount is divided by the number of outstanding shares of the company. The amount determined in this process is posted as the company’s TBVPS.
TBV provides an estimate of the value of the business if it goes bankrupt and is forced to liquidate all of its assets. Since some intrinsic characteristics such as goodwill or employee knowledge cannot be liquidated for a price, TBV does not include intangible assets. The TBV only applies to physical items that can be handled and sold at an easily determined market value.
Some online databases and websites allow potential investors to review how a company’s TBVPS has changed over time.
Tangible Book Value Per Share Requirements
The tangible assets of an organization can include all of the physical products that the business manufactures, as well as all of the materials used to produce them. If an organization is in the business of producing bicycles, for example, all completed bicycles, unused bicycle parts, or raw materials used in the process of manufacturing bicycles would be considered tangible assets. The value of these assets is determined by the price they would earn if the company were forced to liquidate, most often in the event of bankruptcy.
In addition to assets related to the production of a product, any equipment used to create the product can also be included. This can include any tools or machines needed to complete production, as well as any real estate owned and used for production purposes. Additional business equipment, such as computers and filing cabinets, may also be considered tangible assets for valuation purposes.
Review of TBVPS
Book value refers to the ratio of equity to the number of shares outstanding. It only takes into account the accounting valuation, which is not always a faithful reflection of the current market valuation, or of what could be perceived during a sale.