Key Takeaways
- PTBV is a valuation ratio that measures a company’s market value against its tangible assets.
- Intangible assets like intellectual property are excluded from PTBV calculations, offering a clearer view of net value in liquidation.
- PTBV is most relevant for capital-intensive companies with significant hard assets, such as manufacturers.
- Stocks with higher PTBV ratios may pose greater risks of share price losses for investors.
- The PTBV formula divides share price by tangible book value per share, where tangible assets exclude intangibles like goodwill.
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What Is Price to Tangible Book Value (PTBV)?
The price to tangible book value (PTBV) ratio measures a company’s market value relative to its hard or tangible assets. The tangible book value number includes all of a company’s physical assets, such as its inventory, equipment, and real estate. The PTBV is applicable mainly to industrial or capital-intensive companies that own substantial hard assets.
In theory, a stock’s tangible book value per share represents the amount of money an investor could receive for each share of stock if a company were to cease operations and liquidate all of its assets. 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.
An In-Depth Look at Price to Tangible Book Value (PTBV)
A company’s tangible assets are the things of value that it owns. Examples include machinery, equipment, raw materials, inventories, vehicles, and buildings.
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. In fact, in the event of a liquidation, common-stock shareholders are last in line to be repaid, after all of the company’s creditors.
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.
How to Calculate the PTBV: The Formula Explained
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 Is PTBV Most Relevant?
PTBV mainly applies to industrial or capital-intensive companies, like auto makers and oil refineries, which have valuable hard assets.
PTBV doesn’t hold much value for the tech sector since these companies primarily gain worth from intellectual property, which is intangible.
Calculating PTBV can be challenging when companies own long-held land. The land stays on the books at its historical cost, and is not adjusted yearly, leading to a misleadingly high PTBV.
Real-World Example of PTBV in Action
As of the quarter ending June 30, 2023, the tangible book value of General Motors was about $71 billion (total net assets of $276 billion less $5 billion of goodwill and intangible assets minus about $200 billion in liabilities).
There were $1.4 billion in shares outstanding, yielding a tangible book value per share of about $50.7.
The closing price per share of GM on the last trading day of 2023 was $35.72. Therefore, PTBV on the last trading day of 2023 was $35.72/$50.7, or $0.70.
An analyst might analyze this ratio’s trend or compare it with its peers.
How Does PTBV Differ from Price-to-Book (P/B)?
PTBV and price-to-book (P/B) are nearly identical, except P/B includes the value of all assets, including intangible assets. PTBV excludes intangible assets such as intellectual property and goodwill.
When Is PTBV Most Useful?
Many of today’s public companies derive most of their value from intangible assets and may not have very many tangible assets on their balance sheet. Thus, PTBV is not a reasonable way to measure the company’s value.
PTBV is most useful when evaluating capital-intensive companies that rely on hard assets, such as manufacturers or mining companies.
What Does PTBV Represent?
PTBV represents the market value of a company’s shares as a multiple against the amount it would receive if it was forced to sell off all of its hard assets.
The Bottom Line
Price to tangible book value (PTBV) is one of many value ratios that analysts may use in an effort to pinpoint the fair value of a public company’s stock. It is most relevant when considering a manufacturer such as General Motors, or any company that relies heavily on its investments in machinery, equipment, or buildings. PTBV is less relevant for companies like tech giants, where value comes from intangibles like intellectual property and patents.
Correction—July 26, 2024: This article was corrected to update GM’s closing price per share to the last trading day of 2023 and the subsequent PTBV figures.
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