Unlocking the Power of Tangible Book Value Per Share: A Clear Guide for Investors

Adam Hayes, Ph.D., CFA, brings over 15 years of Wall Street expertise as a derivatives trader and financial analyst. With a strong background in economics and behavioral finance, Adam holds a master's degree from The New School for Social Research and a Ph.D. in sociology from the University of Wisconsin-Madison. He is a CFA charterholder and holds FINRA Series 7, 55, and 63 licenses. Currently, he teaches and researches economic sociology and finance at Hebrew University in Jerusalem.

What Is Tangible Book Value Per Share (TBVPS)?

Tangible Book Value Per Share (TBVPS) measures a company's equity value per share by excluding intangible assets, focusing solely on physical and measurable assets. Unlike total book value, TBVPS removes assets like goodwill and patents, which lack physical substance and are harder to value.

TBVPS is closely related to the price-to-tangible book value (PTBV) ratio, providing investors with insights into a company’s tangible asset backing per share.

Key Insights

• TBVPS calculates the value of a company's tangible assets divided by its outstanding shares.
• It helps assess the potential value per share if a company liquidates its tangible assets.
• Tangible assets include physical items such as property, plant, and equipment, while intangible assets like goodwill are excluded.
• One limitation is that TBVPS may not fully capture the true value due to accounting methods and asset depreciation.

How to Calculate TBVPS

The formula for Tangible Book Value Per Share is:

TBVPS = (Total Equity – Preferred Stock – Intangible Assets) / Total Shares Outstanding

Where:

• Total Equity: Represents common shareholders’ equity in the company.
• Preferred Stock: Deducted because preferred shareholders have priority claims on assets.
• Intangible Assets: Non-physical assets such as goodwill, patents, and trademarks.
• Total Shares Outstanding: The number of shares currently held by shareholders.

Understanding the Importance of TBVPS

TBVPS indicates the value common shareholders might receive if a company faces bankruptcy and liquidates its assets. Since intangible assets cannot be sold off easily, excluding them provides a conservative estimate of the company’s liquidation value.

Companies with higher TBVPS typically offer greater protection to shareholders during financial distress, as their tangible asset base is stronger.

By focusing on tangible assets like buildings, machinery, and equipment, TBVPS offers a grounded perspective on a company's intrinsic value per share.

Note:

Many financial platforms track TBVPS trends over time, helping investors analyze a company's financial health and asset quality.

What Counts as Tangible Assets?

Tangible assets include all physical items a company owns or produces. For example, a bicycle manufacturer’s tangible assets would encompass finished bicycles, spare parts, raw materials, production machinery, and real estate used in operations.

Business equipment such as computers, office furniture, and tools also qualify as tangible assets, contributing to the overall tangible book value.

Limitations and Criticisms of TBVPS

While TBVPS offers valuable insights, it relies on accounting values that may not reflect current market conditions or true liquidation prices. Depreciation methods and asset revaluations can affect the accuracy of TBVPS, making it one of several tools investors should use when evaluating a company.

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