Price to Tangible Book Value (PTBV)
What Is Price to Tangible Book Value (PTBV)?
Price to tangible book value (PTBV) is a valuation ratio expressing the price of a security compared to its hard or tangible net assets' book value as reported in the company's balance sheet. The tangible book value number is equivalent to the company's total book value less the value of any intangible assets, like patents, intellectual property, goodwill, and so on.
Understanding Price to Tangible Book Value (PTBV)
A tangible asset (hard asset) is one owned by a company that can be physically touched or taken care of. Examples incorporate machinery, equipment, raw materials, inventories, vehicles, property, etc.
In theory, a stock's tangible book value per share represents the amount of money an investor would receive for each share on the off chance that a company were to cease operations and liquidate its assets at the value recorded on the company's all's accounting books.
As a rule of thumb, stocks that trade at higher PTBV ratios can possibly leave investors with greater share price losses than those that trade at lower ratios, since the tangible book value per share can reasonably be seen as the least price at which a stock could trade.
The PTBV Formula
PTBV = Share Price/Tangible Book Value Per Share
Where:
- Share price is the current market price per share of stock.
- Tangible Book Value Per Share (TBVPS) is equivalent to total tangible net assets partitioned by the total number of shares outstanding.
When to Use Price to Tangible Book Value
PTBV is applicable basically to industrial or capital-intensive companies that own a relatively high proportion of hard assets, as opposed to firms that take part in light manufacturing or operate in help situated industries.
PTBV is somewhat good for nothing as a valuation measure in the technology sector, for example, because a very remarkable tech company's valuation gets from intellectual property, an intangible asset. An investor must likewise be careful with PTBV for companies that have long-held land. The land is stated at historical cost, not increased every year on the balance sheet, bringing about a deceivingly high PTBV ratio.
Example of Price to Tangible Book Value
Toward the finish of 2020, the tangible book value of General Motors was $44.44 billion (total net assets of $235.19 billion less $5.23 billion of goodwill and intangible assets less $185.52 billion in liabilities). $1.4 billion shares were outstanding, yielding a tangible book value per share of $31.74.
The closing price per share of GM on the last day of 2020 was $41.64. Along these lines, PTBV was $41.64/$31.74, or 1.31. An analyst could study the trend of this ratio or compare it with those of its peer group.
Highlights
- Price to tangible book value (PTBV) measures a company's market value relative to its hard or tangible assets.
- PTBV is applicable basically to industrial or capital-serious companies that own a relatively high proportion of hard assets.
- All in theory, a stock's tangible book value per share represents the amount of money an investor would receive for each share in the event that a company were to cease operations and liquidate its assets.
- Stocks that trade at higher PTBV ratios can possibly leave investors with greater share price losses than those that trade at lower ratios.
- The tangible book value number is equivalent to the company's total book value less the value of any intangible assets.
FAQ
When Is PTBV Most Useful?
Today, many companies infer a great deal of value from intangible assets and might not have a lot of tangible assets on their balance sheet. In this way, PTBV is most helpful while assessing capital-serious companies that depend on hard assets, like manufacturers or diggers.
How Does PTBV Differ From Price-to-Book (P/B)?
These two measures are almost indistinguishable, except P/B will incorporate the book value, all things considered, comprehensive of intangible assets. PTBV bars intangible assets like intellectual property (patents, trademarks, and so on) and goodwill.
What Does PTBV Represent?
All PTBV represents the market value of a company's shares as a multiple against the amount it would receive on the off chance that it sold its hard assets.
