What it means
Book value is the accounting value of what shareholders own: assets minus liabilities. Tangible book value goes one step further and strips out intangible assets (things you cannot touch, such as goodwill and acquired brands), leaving a more conservative base.
The reason is that intangibles can disappear quickly if a business weakens. Goodwill is created when one company buys another for more than its net assets, and it can be written down to nothing in a bad year, so some analysts do not count it as backing for the share price.
The ratio divides the market price per share by tangible book value per share. A result of 1.0x means the market values the company at exactly the worth of its tangible net assets, and a result above 1.0x means investors are paying extra for earnings power.
PTBV is especially popular with bank analysts because a bank's balance sheet is mostly financial assets and liabilities at roughly fair value. A bank trading below 1.0x may be seen as cheap or as a sign that investors doubt the stated value of its loans.
The nuance is that it suits some businesses far better than others. For a software or consulting company, the real value lies in people, code and customer relationships that never appear on the balance sheet, so a very high PTBV is normal and tells you little.
It is also worth watching the direction of travel. If tangible book value per share grows steadily year after year, the company is retaining profits and building real capital, whereas a flat or falling figure may point to weak earnings, heavy dividends or write-downs.
In practice
Real-world examples.
Example
An equity analyst compares two regional banks, one trading at 0.9x PTBV and another at 1.8x. She investigates whether the cheaper bank has weaker loan quality or whether the market is simply undervaluing it.
Example
A private equity partner screening industrial companies uses PTBV to see how much of the price of a manufacturer is backed by plant, stock and cash. A low reading helps him argue that downside is limited. He still checks that the stock and equipment are carried at sensible values before relying on the ratio.
Example
A finance director at a listed insurer sees PTBV in a broker note and explains to the board that it measures how much shareholders pay for each dollar of assets after goodwill is removed, which helps frame buyback decisions. The board decides to repurchase shares only if the price remains close to tangible book value.
Formula
Calculation
Tangible book value = total shareholders' equity - goodwill - other intangible assets
Tangible book value per share = tangible book value / shares outstanding
PTBV = share price / tangible book value per share
Suppose a regional bank has shareholders' equity of $80,000,000, goodwill of $10,000,000 and other intangibles of $6,000,000. Tangible book value = 80,000,000 - 10,000,000 - 6,000,000 = $64,000,000. With 8,000,000 shares outstanding, tangible book value per share = 64,000,000 / 8,000,000 = $8.00. If the shares trade at $12.00, PTBV = 12.00 / 8.00 = 1.5x.Case study
Seen in the real world.
Riverbend Bancorp is an illustrative, fictional lender that acquired a smaller bank and booked $30,000,000 of goodwill. Its reported book value per share looked healthy, and the share price traded at 1.1x book value.
When an analyst removed goodwill and other intangibles, tangible book value per share was much lower and the shares were trading at 1.6x PTBV. That meant investors were paying a larger premium than the headline ratio suggested.
The finance team used both measures in its investor presentation and explained the acquisition's goodwill openly. The illustrative lesson is that removing intangibles reveals how much of the share price depends on future earnings rather than assets. The company's chief financial officer now quotes both ratios side by side whenever she presents to analysts.
Watch out
Common mistakes.
- Using PTBV for asset-light companies such as software firms, where most of the value sits in intangibles and the ratio is not meaningful.
- Treating a PTBV below 1.0x as automatically cheap, when it can also signal that the market doubts the quality of the assets.
- Forgetting to deduct other intangibles, such as acquired customer lists and software, and removing goodwill only.
Questions
People also ask.
How is PTBV different from price to book?
Price to book uses total book value, while PTBV removes intangible assets first, giving a stricter measure.
Why is PTBV used for banks?
Bank assets and liabilities are mostly financial and recorded near market value, so tangible equity is a good guide to the capital cushion.
What is a good PTBV?
There is no universal answer, because it depends on profitability, growth and sector, and each company is best compared with similar peers.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related