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Tangible Book Value Per Share (TBVPS): Definition and Formula

Definition

Tangible Book Value Per Share (TBVPS) is a financial metric that represents the net asset value of a company excluding its intangible assets and liabilities on a per-share basis. It provides an insight into a company’s true worth by focusing on its tangible assets. The formula to calculate TBVPS is obtained by subtracting intangible assets and liabilities from the total shareholders’ equity, and then dividing the result by the total number of outstanding shares.

Phonetic

Tangible Book Value Per Share (TBVPS): Definition and FormulaPhonetics: /ˈtæn.dʒə.bəl bʊk ˈvæl.juː pər ʃer/ (TAN-juh-buhl book VAL-yoo per share): /ˌdef.ɪˈnɪʃ.ən/ (DEF-uh-nish-uhn) /ænd/ (and) /ˈfɔr.mjə.lə/ (FOR-myoo-luh)

Key Takeaways

  1. Definition: Tangible Book Value Per Share (TBVPS) is a financial measurement that calculates the company’s total net worth by subtracting its intangible assets (such as goodwill, patents, and trademarks) from its book value (total assets minus total liabilities). This metric is significant because it gives investors a better understanding of the company’s actual physical and financial assets per share, making it easier to assess its true value and make informed decisions.
  2. Formula: TBVPS can be calculated using the following formula: TBVPS = (Total Shareholders’ Equity – Total Intangible Assets) / Total Outstanding Shares. By using this calculation, investors are able to see the value that would be left for each share if the company were to liquidate all its tangible assets and pay off its liabilities.
  3. Main Takeaways: (i) TBVPS is a key metric for investors to evaluate a company’s true value and financial health. (ii) It is especially useful in comparing similar companies within the same industry, as it eliminates the effects of intangible assets, which can vary greatly from one company to another. (iii) Although this metric is valuable for decision-making, it’s essential to examine additional factors such as market conditions, growth potential, and management effectiveness when assessing a company’s overall worth.

Importance

The Tangible Book Value Per Share (TBVPS) is an essential financial metric in the business and finance world as it offers a more accurate reflection of a company’s true financial worth by taking into account only its tangible assets. By excluding intangible assets like patents, copyrights, and goodwill from the calculation, TBVPS allows investors and analysts to assess a company’s underlying value on a per-share basis objectively. This insightful and comprehensive measurement enables comparisons between competitors within an industry, aids in identifying undervalued or overvalued stocks, and informs decision-making in investment and acquisition scenarios. Overall, the Tangible Book Value Per Share serves a crucial role in understanding and evaluating a company’s genuine financial standing and performance.

Explanation

Tangible Book Value Per Share (TBVPS) is a critical financial metric used by investors and analysts to assess a company’s real-world, physical worth in relation to its stock price. The purpose of TBVPS is to provide a more accurate representation of a company’s value by excluding intangible assets, such as patents, trademarks, and goodwill, which can often lead to an inflated perception of a company’s market value. By comparing the TBVPS with the company’s current stock price, investors can determine whether the company is undervalued or overvalued, and make more informed decisions on their investments. Additionally, monitoring the changes in TBVPS over time can provide insight into the effectiveness of management’s strategies and the company’s overall financial health.Calculating the Tangible Book Value Per Share involves three essential steps. First, the Tangible Book Value (TBV) is calculated by subtracting intangible assets and liabilities from the company’s total assets. This results in the net tangible assets of the company. Second, the net tangible assets are divided by the total number of outstanding common shares, which gives you the TBVPS. The formula for calculating TBVPS is as follows: TBVPS = (Total Assets – Intangible Assets – Liabilities) / Total Outstanding Common Shares. This metric plays a vital role in investment analysis, as it reflects the company’s true value that could be potentially realized in case of liquidation or sale. By utilizing TBVPS in financial analysis, investors can ascertain a clearer picture of a company’s true value, leading to better investment decisions and a more comprehensive understanding of the company’s performance.

Examples

Tangible Book Value Per Share (TBVPS) is a financial metric that measures the total physical assets of a company, excluding intangible assets, divided by the number of outstanding shares. It helps investors determine the company’s net asset value and evaluate its financial health, especially in liquidation scenarios.Here are three real-world examples of companies with their TBVPS:1. Apple Inc. (NASDAQ: AAPL):As of September 2021, Apple Inc. had total assets of approximately $337 billion, and total liabilities of approximately $268 billion. The tangible assets (subtracting intangible assets) would be around $312 billion. The company has about 16.26 billion shares outstanding. Using the TBVPS formula:TBVPS = (Total assets – Total liabilities – Intangible Assets) / Shares OutstandingTBVPS = ($312 billion – $268 billion) / 16.26 billionTBVPS = $44 billion / 16.26 billionTBVPS = $2.71Apple’s TBVPS is approximately $2.71.2. Ford Motor Company (NYSE: F):As of September 2021, Ford Motor Company had total assets of approximately $248 billion and total liabilities of approximately $222 billion. The tangible assets would be around $245 billion. The company has about 3.97 billion shares outstanding. Using the TBVPS formula:TBVPS = (Total assets – Total liabilities – Intangible Assets) / Shares OutstandingTBVPS = ($245 billion – $222 billion) / 3.97 billionTBVPS = $23 billion / 3.97 billionTBVPS = $5.80Ford Motor Company’s TBVPS is approximately $5.80.3. IBM (NYSE: IBM):As of September 2021, IBM had total assets of approximately $146 billion, and total liabilities of approximately $134 billion. The tangible assets (subtracting intangible assets) would be around $130 billion. The company has about 897 million shares outstanding. Using the TBVPS formula:TBVPS = (Total assets – Total liabilities – Intangible Assets) / Shares OutstandingTBVPS = ($130 billion – $134 billion) / 897 millionTBVPS = -$4 billion / 897 millionTBVPS = -$4.46IBM’s TBVPS is approximately -$4.46. A negative TBVPS indicates that the company’s liabilities exceed its tangible assets and, in a liquidation scenario, shareholders may not receive any return on their investment.Please note that the figures are for illustration purposes only and may not reflect the latest financial data. Investors should always refer to the company’s financial statements and latest filings to obtain up-to-date information.

Frequently Asked Questions(FAQ)

What is Tangible Book Value Per Share (TBVPS)?

Tangible Book Value Per Share (TBVPS) is a financial ratio that represents the portion of a company’s tangible assets, expressed on a per-share basis. It is calculated by dividing the company’s tangible equity by the total number of outstanding shares. TBVPS helps investors determine the financial health and intrinsic value of a company.

What is the formula for calculating Tangible Book Value Per Share (TBVPS)?

The formula for calculating TBVPS is:TBVPS = (Total Shareholders’ Equity – Intangible Assets) / Total Outstanding Shares

Why is Tangible Book Value Per Share (TBVPS) important for investors?

TBVPS is important for investors because it provides insight into the company’s true underlying value by removing the impact of intangible assets such as patents, trademarks, and goodwill. This helps investors determine if a company is potentially overvalued or undervalued based on its tangible assets.

How is Tangible Book Value Per Share (TBVPS) different from Book Value Per Share (BVPS)?

TBVPS is different from BVPS in that TBVPS focuses specifically on the tangible assets of a company, whereas BVPS includes both tangible and intangible assets. Essentially, TBVPS offers a more conservative valuation of a company since it excludes intangible assets, which can sometimes be subjective and hard to value accurately.

Can a company have a negative Tangible Book Value Per Share (TBVPS)?

Yes, a company can have a negative TBVPS if its liabilities exceed its tangible assets. This situation indicates that the company’s tangible assets are not sufficient to cover its total liabilities. A negative TBVPS could be a warning sign for investors, suggesting financial distress or potential bankruptcy.

How can investors use Tangible Book Value Per Share (TBVPS) to make investment decisions?

Investors can use TBVPS as a valuation tool to assess if a company is potentially overvalued or undervalued. By comparing a company’s TBVPS to its current stock price, investors can determine if the stock is trading at a premium or discount to its tangible assets. Additionally, investors can track changes in TBVPS over time to evaluate the company’s performance in growing its tangible assets and shareholder value.

Related Finance Terms

  • Tangible Assets: Physical assets owned by a company, such as real estate, machinery, and inventory that can be touched and have a quantifiable market value.
  • Intangible Assets: Non-physical assets that hold value for a company, such as patents, copyrights, brand recognition, and goodwill. These assets are not included in TBVPS calculations.
  • Shareholders’ Equity: The residual interest in the assets of a company after subtracting its liabilities. Shareholders’ equity is used in TBVPS calculations to determine the total value attributed to shareholders.
  • Total Outstanding Shares: The total number of shares issued by a company that are held by its shareholders. This value is used to calculate TBVPS by dividing the company’s tangible book value by the total outstanding shares.
  • Book Value Per Share (BVPS): A financial ratio that measures a company’s net asset value, including both tangible and intangible assets, divided by its total outstanding shares. This differs from TBVPS, which only considers tangible assets.

Sources for More Information

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