Tangible Book Value per Share

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What is Tangible Book Value per Share?

Tangible Book Value per Share is the tangible book value (excluding intangible assets) divided by the number of outstanding shares, assessing the tangible net worth per share.

How do you interpret Tangible Book Value per Share?

Tangible Book Value per Share provides a conservative measure of net asset value per share, excluding intangible assets, to assess the company’s tangible worth.

How to Calculate Tangible Book Value per Share?

To calculate TBVPS, subtract intangible assets and liabilities from total assets, then divide the result by the number of outstanding shares.

Tangible Book Value per Share = (Total Assets - Intangible Assets - Liabilities) / Number of Outstanding Shares

where

• Total Assets are all assets owned by the company.
• Intangible Assets include goodwill and intellectual property.
• Liabilities are the company's obligations.

Why is Tangible Book Value per Share important?

TBVPS is important because it provides a conservative estimate of a company’s net assets that can be realized in the event of liquidation. It is particularly useful for evaluating companies in asset-heavy industries like manufacturing and real estate, where tangible assets form the backbone of the company’s value.

How does Tangible Book Value per Share benefit investors?

TBVPS provides a clearer picture of the tangible backing of each share. Investors looking for companies with strong asset backing, especially in industries that rely heavily on physical assets, will find this metric helpful in identifying potential investments with lower downside risk.

Using Tangible Book Value per Share to Evaluate Stock Performance

TBVPS can be used in conjunction with valuation metrics like the Price-to-Book Ratio (P/B). A company with a market price below its TBVPS may be undervalued, particularly if the company has strong earnings or growth potential.

FAQ about Tangible Book Value per Share

What is a Good Tangible Book Value per Share?

A good TBVPS depends on the industry. In industries where tangible assets are crucial (e.g., manufacturing, real estate), a higher TBVPS is desirable. In industries focused on intangible assets (e.g., technology), TBVPS might be less relevant.

What Is the Difference Between Metric 1 and Metric 2?

TBVPS excludes intangible assets such as goodwill and patents, while Book Value per Share includes them. As a result, TBVPS is typically lower than BVPS and provides a more conservative estimate of the company’s tangible net assets per share.

Is it bad to have a negative Tangible Book Value per Share?

A low TBVPS could indicate that a company has few tangible assets relative to its share count, which may be a concern in industries where physical assets are critical. However, for companies with significant intangible assets (e.g., technology firms), this might not be a problem.

What Causes Tangible Book Value per Share to Increase?

TBVPS can increase due to:

Reduction in liabilities.
An increase in tangible assets (such as through property acquisitions).
A reduction in outstanding shares (e.g., through share buybacks).

What are the Limitations of Tangible Book Value per Share?

TBVPS does not account for intangible assets, which can be significant for companies in certain industries. It may also not reflect the company's ability to generate future earnings or its overall profitability.

When should I not use Tangible Book Value per Share?

TBVPS is less useful for companies in industries where intangible assets, such as brand value or intellectual property, play a significant role, like technology or pharmaceuticals.

How does Tangible Book Value per Share compare across industries?

In asset-heavy industries like manufacturing, utilities, and real estate, TBVPS is a critical measure of a company's value. In contrast, in sectors where intangible assets dominate (e.g., technology or services), the metric may be less useful in reflecting the true value of the company.

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