What Is Tangible Book Value Per Share (TBVPS)?
Tangible book value per share (TBVPS) is a method by which a company’s value is determined on a per-share basis by measuring its equity without the inclusion of any intangible assets. Intangible assets are those that lack physical substance, thus making their valuation a more difficult undertaking than the valuation of tangible assets.
TBVPS is similar to price-to-tangible book value (PTBV).
- Tangible book value per share (TBVPS) is the value of a company’s tangible assets divided by its current outstanding shares.
- TBVPS determines the potential value per share of a company in the event that it must liquidate its assets.
- Assets such as property and equipment are considered tangible assets. Intangible assets, such as goodwill, are not included in the calculation of TBVPS.
- One of the criticisms of TBVPS’s validity is the lack of accuracy in the accounting of a company’s tangible assets.
The Formula for TBVPS
TBVPS=Total Number of Shares OutstandingTotal Tangible Assetswhere:TBVPS=tangible book value per share
Understanding Tangible Book Value Per Share
Tangible book value (TBV) of a company is what common shareholders can expect to receive if a firm goes bankrupt—thereby forcing the liquidation of its assets at the book value price. Intangible assets, such as goodwill, are not included in tangible book value because they cannot be sold during liquidation. However, companies with high tangible book values tend to offer shareholders more downside protection in the case of bankruptcy.
Tangible book value per share thus focuses solely on the value of an organization's tangible assets, such as buildings and equipment. Once the value of the tangible assets is determined, that amount is divided by the number of the company’s current outstanding shares. The amount determined in this process is recognized as the company’s TBVPS.
TBV provides an estimate regarding the value of the company if it goes bankrupt and is forced to liquidate the entirety of its assets. Since certain intrinsic characteristics such as goodwill or employee knowledge cannot be liquidated for a price, TBV does not include intangible assets. The TBV applies only to physical items that can be handled and sold at an easily determined market value.
Certain online databases and websites allow potential investors to examine the progress of a company’s TBVPS over time.
Requirements for Tangible Book Value Per Share
An organization's tangible assets can include any physical products the company produces, as well as any materials used to produce them. Should an organization be in the business of producing bicycles, for instance, any completed bicycles, unused bicycle parts, or raw materials used during the process of fabricating bicycles would qualify as tangible assets. The value of these assets is determined based on what price they would draw should the company be forced to liquidate, most commonly in the event of a bankruptcy.
Aside from assets related to the production of a product, any equipment used to create the product can be included as well. This can include any tools or machinery required to complete production, as well as any real estate owned and used for the purposes of production. Additional business equipment, such as computers and filing cabinets, may also be considered tangible assets for the purpose of valuation.
Criticism of TBVPS
Book value refers to the ratio of stockholder equity to the number of shares outstanding. It takes into account only the accounting valuation, which is not always an accurate reflection of the current market valuation, or of what could be received during a sale.