Definition

Price to Tangible Book Value (PTBV) Ratio is a financial metric used to compare a company's market value to its tangible book value. Tangible book value is the total net asset value of a company minus intangible assets and goodwill.

Formula

PTBV Ratio = Market Capitalization / Tangible Book Value

How to use the valuation method

Investors use the PTBV ratio to assess whether a stock is undervalued or overvalued compared to its tangible assets. A lower PTBV ratio may indicate that a stock is undervalued, while a higher ratio might suggest overvaluation. It is particularly useful for evaluating companies with significant tangible assets.

Which industries it work best in

The PTBV ratio works best in asset-heavy industries such as manufacturing, real estate, and financial services, where tangible assets form a significant part of the company's value.

Which industries it does not apply to and why

The PTBV ratio is less applicable to industries with substantial intangible assets, such as technology and pharmaceuticals, because these companies derive much of their value from intellectual property, brand value, and other intangibles not captured in tangible book value.

Summary

The Price to Tangible Book Value (PTBV) Ratio is a useful tool for evaluating companies with significant tangible assets. It helps investors determine if a stock is undervalued or overvalued based on its tangible book value. However, it is less effective for companies in industries where intangible assets are predominant.