Price to Tangible Book Value (PTBV)? Definition and Calculation

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 equal to the company's total book value less the value of any intangible assets, such as patents, intellectual property, goodwill, etc.

Understanding Price to Tangible Book Value (PTBV)

A tangible asset (hard asset) is one owned by a company that can be physically touched or handled. Examples include machinery, equipment, raw materials, inventories, vehicles, property, and so on.

In theory, a stock's tangible book value per share represents the amount of money an investor would receive for each share if a company were to cease operations and liquidate all of its assets at the value recorded on the company's accounting books.

As a rule of thumb, 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, since the tangible book value per share can reasonably be viewed as the lowest 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 equal to total tangible net assets divided by the total number of shares outstanding.

When to Use Price to Tangible Book Value

PTBV is applicable mainly to industrial or capital-intensive companies that own a relatively high proportion of hard assets, as opposed to firms that engage in light manufacturing or operate in service-oriented industries.

PTBV is rather meaningless as a valuation measure in the technology sector, for instance, because much of a tech company's valuation derives from intellectual property, an intangible asset. An investor must also be careful with PTBV for companies that have long-held land. The land is stated at historical cost, not marked up each year on the balance sheet, resulting in a deceivingly high PTBV ratio.

Example of Price to Tangible Book Value

At the end 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. Therefore, 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.