What is Tangible Book Value?

//What is Tangible Book Value?
What is Tangible Book Value? 2017-10-10T16:08:34+00:00

Definition: Tangible book value, also known as net tangible equity, measures a firm’s net asset value excluding the intangible assets and goodwill. In other words, it’s how much all of the physical assets of a company are worth.

What Does Tangible Book Value Mean?

What is the definition of tangible book value? The tangible book value per share (TBVPS) shows the amount per share that shareholders would expect if the firm was liquidated today. The TBV excludes a firm’s intellectual property, patents, and trademarks because these are intangible assets that cannot be easily sold such as property, plant, and equipment.

The tangible book value formula is calculated using the firm’s total assets, total liabilities, intangible assets, and goodwill.

Let’s look at an example.

Example

Malcolm is a financial analyst at Wellington Securities. He wants to calculate the TBV of a particular stock from a client’s portfolio to compare it to the firm’s stock price. Malcolm thinks that the stock is overvalued, trading at a higher price than its assets justify.

Malcolm sees the firm’s balance sheet and derives the following information:

  • Total assets = $97,366 million
  • Total Liabilities (excluding shareholders’ equity) = $53,125 million
  • Intangible assets value = $7,789 million
  • Goodwill = $12,706 million

Malcolm calculates the firm’s tangible value as follows:

Tangible book value = total assets – total liabilities – intangible assets value – goodwill = $97,366 – $53,125 – $7,789 – $12,706 = $23,746 million

The firm’s TBV is $23.8 million. To calculate the tangible book value per share, Malcolm finds that the firm’s number of shares outstanding is 2,000,000 million. TBVPS = TBV / number of shares outstanding = $23,800,000 / 2,000,000 = $11.90

Because the firm’s TBVPS is lower than the stock price of $15.88, the firm is considered overvalued, meaning that the value of the firm’s shares is less than the value of its hard assets. In any case, if the firm was to be liquidated today, shareholders would get $11.90 per share.

Summary Definition

Define Tangible Book Value: Tangible book value is the value of the total net assets of a company not including any intangible assets.