Price to Tangible Book Value

Theoretically, P/TB represents the hard assets of the company, i.e. the amount of money that shareholders would receive for each share owned if the company were to liquidate its operations. Some ‘intangible' assets have questionable value - for example a company might have overpaid for an acquisition and conservative value investors sometimes prefer to remove them when valuing a company.

We exclude preferred shares in the calculation of Tangible Book Value. As with most ratios, it varies a fair amount by industry (companies that require more infrastructure capital will usually trade at P/TB ratios much lower than, for example, consulting firms).

A higher P/TB may be a sign that a company is overvalued.. However, Tangible Book value may be substantially different from market value, especially in high-tech, knowledge-based and other industries whose primary assets are not tangible.