Definition:

Tangible Book Value per Share (TBVPS) is a financial metric that measures the per-share value of a company's tangible assets, which are assets that can be physically touched and do not include intangible assets like goodwill or patents.

Formula:

Tangible Book Value per Share = (Total Assets - Total Liabilities - Intangible Assets) / Total Outstanding Shares

How to use the metric:

Investors use TBVPS to assess the value of a company's tangible assets on a per-share basis. It helps in evaluating whether a stock is undervalued or overvalued by comparing the market price per share to the TBVPS. A stock trading below its TBVPS might be considered undervalued, assuming the company's tangible assets are accurately valued.

Limitations:

TBVPS does not account for intangible assets, which can be significant for companies with strong brand value or intellectual property. It also does not reflect the company's future earning potential or cash flow generation. Additionally, the valuation of tangible assets can be subjective and may not reflect current market conditions.

Applies to:

TBVPS is most applicable in industries with significant tangible assets, such as manufacturing, real estate, and utilities, where physical assets play a crucial role in the company's operations and valuation.

Doesn't apply to:

This metric is less applicable to industries that rely heavily on intangible assets, such as technology, pharmaceuticals, and media, where intellectual property, brand value, and patents are more critical to the company's value.

Summary:

Tangible Book Value per Share provides insight into the value of a company's tangible assets on a per-share basis, useful for evaluating companies with substantial physical assets. However, it overlooks intangible assets and future earnings potential, making it less suitable for industries where intangible assets are predominant.