Price to Tangible Book Value (PTBV)

The price to tangible book value (PTBV) is an important indicator for value investors since it compares a company’s Tangible Book Value to its current market price. It expresses the price of a security in relation to the book value of its hard, or tangible assets as recorded in the company’s balance sheet. Intangible assets (intellectual property, patents, goodwill, and so on) are subtracted from the company’s book value to arrive at tangible book value. PTBV is a commonly used abbreviation in areas such as banking, computers, education, finance, government, and health.

The price to tangible book value (PTBV) ratio compares a company’s market value to its hard, or tangible assets, excluding intangible assets. Theoretically, PTBV indicates the amount of money received by shareholders for each share held if the firm were to cease operations. A higher PTBV shows a more significant level of hazard because of the expanded potential for share value misfortunes. A substantial resource (hard resource) is one possessed by an organization that can be genuinely contacted or dealt with. Models incorporate apparatus, hardware, crude materials, inventories, vehicles, property, etc.

Theoretically, PTBV reflects the firm’s hard assets, or the amount of money shareholders would get for each share they possess if the company were to cease operations. The tangible book value per share of stock, in principle, reflects the amount of money an investor would receive for each share if a business were to stop operations and sell all of its assets at the value recorded on its accounting books.

Example of Price to Tangible Book Value (PTBV)

Some ‘intangible’ assets have sketchy incentives for instance an organization may have overpaid for obtaining and traditionalist worth financial backers some of the time like to eliminate them while esteeming an organization. Because the tangible book value per share might legitimately be considered as the lowest price at which a company could sell, firms that trade at higher price-to-tangible book value ratios have the potential to leave investors with larger share price losses than those that trade at lower ratios.

The Formula for PTBV is

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 assets divided by the total number of shares outstanding.

The tangible book value per share of a stock indicates the amount of money an investor would get for each share if the firm ceased operations and liquidated all of its assets at the value reflected on its accounting books. PTBV is pertinent primarily to modern or capital-serious organizations that own a generally high extent of hard resources, rather than firms that take part in light assembling or administration situated enterprises.

In the technology industry, for example, PTBV is largely useless as a valuation metric because much of a company’s value is derived from intellectual property, which is an intangible asset. When it comes to PTBV, investors should be wary of firms with long-term landholdings. Because the land is stated at historical cost rather than being marked up each year on the balance sheet, PTBV might produce a misleadingly high ratio.

A higher PTBV might be an indication that an organization is exaggerated. Notwithstanding, Tangible Book worth might be considerably not the same as market esteem, particularly in cutting edge, information-based and different businesses whose essential resources are not substantial. Today, many organizations determine a lot of significant worth from immaterial resources and might not have a lot of unmistakable resources on their asset report. As a result, PTBV is most effective for analyzing capital-intensive businesses that rely on physical assets, such as manufacturers or enterprises in the natural resources sector.