What is Price to Tangible Book Value (PTBV)?
Price to Book Value (PTBV) is a valuation ratio that expresses the price of a security compared to the book value of its tangible or tangible assets as reflected in the company’s balance sheet. Tangible book value is the total book value of the company minus the value of intangible assets such as patents, intellectual property, goodwill, etc.
The central theses
- Price to Tangible Book Value (PTBV) measures a company’s market value relative to its tangible or tangible assets.
- The tangible book value is the total book value of the company less the value of any intangible assets.
- In theory, a share’s tangible book value per share represents the amount of money an investor would receive for each share if a company went out of business and liquidated all of its assets.
- Stocks trading at higher PTBV ratios can incur greater price losses for investors than stocks trading at lower ratios.
- The PTBV is mainly applicable to industrial or capital-intensive companies that own a relatively high proportion of fixed assets.
Understand price to tangible book value (PTBV).
A tangible asset (hard asset) is an asset owned by an entity that can be physically touched or handled. Examples include machinery, equipment, raw materials, inventories, vehicles, real estate, etc.
In theory, the tangible book value of a share per share represents the amount of money an investor would receive for each share if a company went out of business and liquidated all of its assets at the value shown on the company’s books.
As a rule of thumb, stocks trading at higher PTBV ratios can offer investors greater price losses than stocks trading at lower ratios, since tangible book value per share can reasonably be viewed as the lowest price at which a stock could be traded.
The PTBV formula
PTBV = share price / tangible book value per share
When should price at tangible book value (PTBV) be used?
PTBV is mainly applicable to industrial or capital-intensive companies that own a relatively high proportion of fixed assets, as opposed to companies engaged in light manufacturing or in service-oriented industries.
For example, PTBV is rather meaningless as a valuation metric in the technology sector, since much of a technology company’s valuation comes from intellectual property, an intangible asset. Even with companies that have owned property for many years, an investor must be careful with the PTBV. Land is accounted for at cost and not valued on the balance sheet each year, resulting in a deceptively high PTBV rate.
Example of Price to Tangible Book Value (PTBV)
At the end of 2020, General Motors’ tangible book value was $44.44 billion (total assets of $235.19 billion less $5.23 billion in goodwill and intangible assets less $185.52 billion in liabilities). $1.4 billion worth of shares were outstanding, resulting in a tangible book value per share of $31.74.
GM’s closing price per share on the last day of 2020 was $41.64. Therefore, PTBV was $41.64/$31.74 or 1.31. An analyst could examine the trend of this ratio or compare it to those of its peer group.
frequently asked Questions
How is PTBV different from Price-to-Book (P/B)?
These two metrics are almost identical except that P/B includes the book value of all assets including intangible assets. PTBV excludes intangible assets such as intellectual property (patents, trademarks, etc.) and goodwill.
When is PTBV most useful?
Today, many companies derive great value from intangible assets and may not have very many tangible assets on their balance sheets. Therefore, PTBV is most useful when evaluating capital-intensive companies that rely on hard assets such as manufacturers or miners.
What does the PTBV represent?
PTBV represents the market value of a company’s stock as a multiple of the amount it would receive if it sold all of its tangible assets.