What it means
Book value is the accounting value of a company's equity, or assets minus liabilities. Tangible book value goes a step further by removing intangible assets (things with no physical form, like goodwill, patents and trademarks) and sometimes preferred shares, leaving only assets that could realistically be sold.
Dividing that figure by the number of shares outstanding gives TBVPS. The result tells you how much real, hard-asset value sits behind each share, which is useful when judging whether a share price is supported by what the company owns.
The measure is especially popular for banks and insurers, whose assets are largely financial and relatively easy to value. For these firms, analysts compare the share price with TBVPS using the price to tangible book ratio.
A bank trading below tangible book value may be seen as cheap, or may be signalling that investors expect losses. It is much less useful for companies whose value lies in intangibles.
A software business or a consumer brand may have very low TBVPS even though it earns high profits, so a low figure does not mean it is a poor investment. The measure suits asset-heavy businesses best.
TBVPS has other limits too. Assets are recorded at historical cost less depreciation, which may be well above or well below market value, and liabilities such as pension deficits or lawsuits may be underestimated.
For this reason, analysts treat TBVPS as one input alongside earnings, cash flow and risk, never as a single answer. Trends are often more helpful than the number itself.
A steadily rising TBVPS suggests the company is retaining profits and building real value, while a falling one can signal losses, large buybacks or write-downs.
In practice
Real-world examples.
Example
A regional bank reports a TBVPS of $20 and its shares trade at $24. An analyst notes that the market values the bank at 1.2 times tangible book, which is typical for a steady lender. Because a bank's assets are mostly loans and securities, the figure is a reasonable guide to its underlying worth.
Example
A manufacturer buys a rival for $200,000,000 and records $120,000,000 of goodwill. Its book value per share looks healthy, but TBVPS falls sharply because the goodwill is excluded. Management later explains that the goodwill reflects the rival's customer relationships, which will produce profit over many years.
Example
An investor screens for shares trading below TBVPS and finds an insurer at $18 against $22. Before buying she checks whether the insurer has hidden claims or under-reserved liabilities that explain the discount. Her caution is sensible, since a low price to tangible book ratio can be a warning sign as often as a bargain.
Formula
Calculation
TBVPS = (Total shareholders' equity - Intangible assets - Preferred equity) / Shares outstanding
A company reports shareholders' equity of $120,000,000, goodwill and other intangibles of $30,000,000 and preferred equity of $10,000,000. Tangible common equity is $120,000,000 - $30,000,000 - $10,000,000 = $80,000,000. With 8,000,000 shares outstanding, TBVPS is $80,000,000 / 8,000,000 = $10.00 per share. If the shares trade at $12.50, the price to tangible book ratio is $12.50 / $10.00 = 1.25.Case study
Seen in the real world.
Sandstone Savings is an illustrative, fictional community bank with 5,000,000 shares and TBVPS of $15. After acquiring a smaller bank and booking $10,000,000 of goodwill, its overall book value rose but its TBVPS fell to $13.
The chief financial officer, Marcus, explained to investors that the acquisition would raise earnings per share, but that it came at a cost to tangible book. He published a plan showing how retained profits would rebuild TBVPS to $15 within three years.
In this fictional story, investors accepted the trade-off because Marcus gave them a clear recovery target. The lesson is that a drop in TBVPS after an acquisition is not necessarily bad, provided the company explains how it will earn the money back. Marcus also began reporting TBVPS in every quarterly update, next to earnings per share, so investors could follow the recovery. Analysts welcomed the openness and several raised their ratings on the strength of it.
Watch out
Common mistakes.
- Using TBVPS for a software or brand-driven company, where most of the value sits in intangibles.
- Assuming a share trading below TBVPS is automatically a bargain, when the market may expect losses.
- Forgetting to subtract preferred equity, which overstates the value belonging to ordinary shareholders.
Questions
People also ask.
How is TBVPS different from book value per share?
TBVPS removes intangible assets such as goodwill, so it is lower and more conservative.
Which industries use TBVPS most?
Banks, insurers and other financial firms use it most, because their assets are mainly financial and easier to value.
What does a rising TBVPS tell me?
It generally shows the company is building real asset value through retained profits, though you should check the reason behind the rise.
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