Definition of price at tangible book value (PTBV)

What is price at tangible book value (PTBV)?

The price at tangible book value (PTBV) is a valuation ratio expressing the price of a security in relation to the book value of its tangible or tangible assets as it appears on the company’s balance sheet.

The number of tangible book value equals the total book value of the business less than the value of any intangible asset. Intangible assets would be balance sheet items such as patents, intellectual property (IP), goodwill, etc.

Key points to remember

  • Price at tangible book value (PTBV) measures the market value of a business relative to its tangible or tangible assets, excluding the value of all intangible assets.
  • The number of tangible book value equals the total book value of the business less than the value of any intangible asset.
  • Intangible assets can be items such as patents, intellectual property, goodwill, etc.

Understand the price versus the tangible book value

A tangible asset (hard asset) is an asset owned by a business that can be physically touched or manipulated. Examples include machinery, equipment, raw materials, inventory, vehicles, goods, etc.

In theory, the tangible book value of a share per share represents the amount of money an investor would receive for each share if a company were to go out of business and liquidate all of its assets at the value recorded in the company’s books. business.

In general, stocks that trade at higher tangible price-to-book ratios have the potential to leave investors with larger price losses than those that trade at lower ratios, since tangible book value per share may reasonably be regarded as the lowest price at which a stock could trade.

The formula for PTBV is

PTBV = share price / tangible book value per share

Or:

  • The share price is the current market price per share.
  • The tangible book value per share (TBVPS) is equal to the total tangible assets divided by the total number of shares outstanding.

When to use the PTBV

PTBV mainly applies to industrial or capital-intensive companies that have a relatively high proportion of durable assets, as opposed to companies that engage in light manufacturing or service-oriented industries.

PTBV is rather meaningless as a valuation measure in the tech industry, for example, because so much of a company’s valuation stems from intellectual property, an intangible asset. An investor should also be careful with PTBV for companies that have long held land. The land is valued at historical cost, not increased each year in the balance sheet; therefore, PTBV can result in a deceptively high ratio.

Example of price versus tangible book value

At the end of 2020, General Motors’ tangible book value was $ 44.44 billion (total assets of $ 235.19 billion minus $ 5.23 billion of goodwill and intangible assets minus $ 185.52 billion. dollars in liabilities). $ 1.4 billion of shares were outstanding, resulting in a tangible book value per share of $ 31.74.

GM’s closing price per share on the last day of 2020 was $ 41.64. Therefore, the PTBV was $ 41.64 / $ 31.74, or 1.31. An analyst could study the evolution of this ratio or compare it to those of his peer group.

Frequently Asked Questions

How does the PTBV differ from the price per book (P / B)?

These two measures are almost identical, except that P / B will include the carrying amount of all assets, including intangibles. The PTBV excludes intangible assets such as intellectual property (patents, brands, etc.) and goodwill.

When is PTBV most useful?

Today, many companies derive great value from intangible assets and may not have a lot of tangible assets on their balance sheet. Thus, PTBV is most useful when evaluating capital-intensive companies that rely on durable assets, such as manufacturers or in natural resource industries.

What does the PTBV represent?

The PTBV represents the market value of a company’s shares as a multiple of the amount it would receive if it sold all of its hard assets.


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