What Is Tangible Book Value Per Share (TBVPS)?

What Is Tangible Book Value Per Share (TBVPS)?

Let me explain tangible book value per share, or TBVPS, directly to you. It's a way to figure out a company's value per share by looking at its equity, but we exclude any intangible assets. These intangibles are things without physical form, like patents or goodwill, which are harder to value than tangible items like buildings or equipment.

You should know that TBVPS is much like the price-to-tangible book value ratio, or PTBV.

Key Takeaways

TBVPS comes down to dividing a company's tangible assets by its current outstanding shares. This gives you the potential value per share if the company has to liquidate everything. Tangible assets include things like property and equipment, but we leave out intangibles such as goodwill. One issue with TBVPS is that the accounting for tangible assets isn't always precise.

The Formula for TBVPS

Here's the formula you need: TBVPS equals (Total Equity minus Preferred Stock minus Intangibles) divided by Total Shares Outstanding. Total Equity includes the common shareholders' equity in the company. We subtract Preferred Stock because preferred shareholders get first dibs on assets. Intangibles are non-physical items like goodwill or patents. Total Shares Outstanding is just the number of shares held by shareholders right now.

Understanding Tangible Book Value Per Share

Tangible book value, or TBV, is what common shareholders would get if the company goes bankrupt and has to sell off its assets at book value. We don't include intangibles like goodwill since they can't be sold in liquidation. Companies with high TBV tend to give shareholders better protection if things go south.

TBVPS zeros in on tangible assets like buildings and equipment. You determine their value, then divide by the outstanding shares to get the per-share figure. This estimates the company's value in a forced liquidation, ignoring things like goodwill or employee expertise that can't be sold easily. TBV sticks to physical items with clear market values.

You can check online databases or websites to track a company's TBVPS over time if you're investing.

Requirements for Tangible Book Value Per Share

Tangible assets include any physical products a company makes, plus the materials used to make them. For example, if a company produces bicycles, that covers finished bikes, parts, and raw materials. Their value is based on what they'd fetch in a liquidation, like in bankruptcy.

Beyond production assets, equipment like tools, machinery, or real estate used for production counts too. Even office items like computers or filing cabinets can be tangible assets for valuation purposes.

Criticism of TBVPS

Book value is the ratio of stockholder equity to outstanding shares, but it relies on accounting values that might not match current market values or what you'd get in a sale. That's a key criticism of TBVPS—it doesn't always reflect reality accurately.