Key Takeaways
- Measures net tangible assets per share.
- Excludes intangible assets like goodwill.
- Useful for assessing liquidation value.
- Formula: (Assets - Intangibles - Liabilities) ÷ Shares.
What is Tangible Book Value Per Share (TBVPS) Explained: Definition & Formula?
Tangible Book Value Per Share (TBVPS) is a conservative financial metric that calculates the net value of a company's tangible assets per outstanding share, excluding intangible assets like goodwill and patents. It helps investors assess a company's liquidation value by focusing on physical assets.
The formula for TBVPS is: (Total Assets - Intangible Assets - Total Liabilities) divided by the number of outstanding common shares. This metric offers a clearer picture of shareholder value by removing non-physical, hard-to-value items.
Understanding TBVPS is essential for analyzing companies structured as a C corporation or tracking equity components such as paid-in capital.
Key Characteristics
TBVPS highlights the tangible net worth of a company through several important features:
- Excludes Intangibles: Removes goodwill, patents, and intellectual property to focus on physical assets.
- Conservative Valuation: Provides a lower, more cautious valuation than standard book value per share.
- Useful in Asset-Heavy Industries: Particularly relevant for companies with significant property, plant, and equipment.
- Reflects Liquidation Value: Indicates the per-share amount shareholders might recover if the company liquidates.
- Shares Outstanding: Calculated using common shares, similar to metrics applied to A shares.
How It Works
To calculate TBVPS, first subtract intangible assets from total assets to isolate tangible assets. Then subtract total liabilities to determine tangible equity available to common shareholders.
Divide the resulting tangible book value by the number of common shares outstanding to get TBVPS. This straightforward calculation helps you gauge a company's net tangible worth per share, offering insight beyond traditional equity measures that include intangible assets.
Investors often use TBVPS alongside other valuation tools when analyzing companies like Bank of America to understand their real asset backing.
Examples and Use Cases
TBVPS is especially useful for investors evaluating companies where tangible assets dominate the balance sheet. Here are some examples:
- Financial Institutions: JPMorgan Chase uses tangible book value metrics to assess capital adequacy and liquidation risk.
- Manufacturing Firms: Companies with heavy investments in equipment and inventory rely on TBVPS to value their shares conservatively.
- Airlines: Delta provides a tangible book value perspective reflecting its substantial physical assets like aircraft and facilities.
These cases demonstrate TBVPS’s practical role in identifying undervalued stocks or assessing downside risk in volatile markets.
Important Considerations
While TBVPS offers a conservative snapshot of value, it excludes valuable intangible assets that may drive future earnings. Therefore, it is best used alongside other metrics to form a complete investment view.
Also, variations in accounting for intangible assets and preferred stock can affect TBVPS calculations. Staying informed about such nuances is essential, especially when comparing companies or sectors impacted by labor market dynamics or regulatory changes.
Final Words
Tangible Book Value Per Share offers a grounded view of a company’s net physical worth by excluding intangible assets. Use this metric to identify potential undervalued stocks or assess downside risk, especially in asset-heavy industries. Consider comparing TBVPS with market price and earnings to refine your investment decisions.
Frequently Asked Questions
Tangible Book Value Per Share (TBVPS) measures the net value of a company's tangible assets per outstanding share, excluding intangible assets like goodwill and patents. It shows what shareholders might theoretically receive per share if the company liquidated all physical assets and paid off liabilities.
TBVPS excludes intangible assets such as goodwill and intellectual property to provide a more conservative and reliable estimate of a company's tangible net worth. In contrast, BVPS includes both tangible and intangible assets, which can sometimes overstate the company's true liquidation value.
Investors use TBVPS to assess downside risk, especially in asset-heavy industries like manufacturing or real estate. A stock trading below its TBVPS might indicate an undervalued opportunity, signaling potential for a bargain if the company has strong earnings.
The standard formula is: TBVPS = (Total Assets - Intangible Assets - Total Liabilities) divided by the Number of Outstanding Shares. This calculation gives the net tangible asset value attributable to each share.
For example, a company with $100 million in total assets, $10 million in intangible assets, $40 million in liabilities, and 5 million shares outstanding would have a TBVPS of ($100M - $10M - $40M) / 5M = $10 per share.
Some variations of the TBVPS formula subtract the preferred stock value before dividing by common shares outstanding to provide a more precise figure for common shareholders. This is important because preferred stockholders have higher claim priority in liquidation.
In liquidation, TBVPS approximates the amount per share that common shareholders might recover after the company sells tangible assets and settles liabilities and higher-priority claims like debt and preferred stock.
Intangible assets such as goodwill, patents, trademarks, and intellectual property are excluded from TBVPS calculations because they are non-physical and can be hard to value or liquidate.
