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What Is Price to Tangible Book Value (PTBV)?
Let me explain PTBV directly: it's a valuation ratio that compares the price of a security to the company's physical assets as listed on its balance sheet.
The tangible book value includes all physical assets but leaves out intangibles like goodwill, patents, intellectual property, and trademarks. By excluding these, PTBV gives you a more accurate picture of the company's net value to shareholders after debts in a liquidation scenario.
Key Takeaways
- Price to tangible book value (PTBV) measures a company’s market value relative to its hard or tangible assets.
- The tangible book value number includes all of a company’s physical assets, such as its inventory, equipment, and real estate.
- In theory, a stock’s tangible book value per share represents the amount of money an investor could receive for each share of stock if a company were to cease operations and liquidate all of its assets.
- Stocks that trade at higher PTBV ratios have the potential to leave investors with greater share price losses than those that trade at lower ratios.
- PTBV is applicable mainly to industrial or capital-intensive companies that own substantial hard assets.
Understanding Price to Tangible Book Value (PTBV)
A company’s tangible assets are the valuable items it owns, like machinery, equipment, raw materials, inventories, vehicles, and buildings.
Theoretically, a stock’s tangible book value per share is what you'd get per share if the company shut down and sold everything at book value. But remember, in a real liquidation, common shareholders are last after creditors.
As a general rule, higher PTBV ratios mean potential for bigger losses, since the tangible book value per share sets a floor for the stock price.
The PTBV Formula
Here's the formula you need: PTBV = Share Price / Tangible Book Value Per Share.
Share price is the current market price per share. Tangible book value per share (TBVPS) is total tangible net assets divided by total shares outstanding.
When to Use Price to Tangible Book Value
You should apply PTBV mainly to industrial or capital-intensive companies, like auto manufacturers or oil refiners, where hard assets hold high value.
It's not useful in tech, where value comes from intellectual property, an intangible. Calculating it can be tricky for companies with long-held land at historical cost, leading to inflated ratios.
Example of Price to Tangible Book Value
Take General Motors as of the quarter ending June 30, 2023: tangible book value was about $71 billion (total net assets of $276 billion minus $5 billion in goodwill and intangibles, minus $200 billion in liabilities).
With 1.4 billion shares outstanding, that's $50.7 per share. GM's closing price on the last trading day of 2023 was $35.72, so PTBV was $35.72 / $50.7, or 0.70.
You could analyze this trend or compare it to peers.
How Does PTBV Differ from Price-to-Book (P/B)?
PTBV and P/B are almost the same, but P/B includes all assets, even intangibles like IP and goodwill. PTBV strips those out.
When Is PTBV Most Useful?
Many modern companies get value from intangibles, so PTBV isn't great for them. It's best for capital-intensive ones like manufacturers or miners that rely on hard assets.
What Does PTBV Represent?
PTBV shows the market value of shares as a multiple of what the company would get selling off all hard assets in a forced liquidation.
The Bottom Line
PTBV is one tool analysts use to find a stock's fair value. It's not relevant for tech giants driven by intangibles like IP and patents.
It's more useful for manufacturers like General Motors or any firm heavy on machinery, equipment, or buildings.
Correction—July 26, 2024: This article was corrected to update GM’s closing price per share to the last trading day of 2023 and the subsequent PTBV figures.
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