Tangible Book Value

Tangible book value is an approach by which a company is valued by calculating its equity without including its intangible assets. Intangible assets include non-physical items which are not easy to evaluate as compared to the tangible assets. Tangible book value approach is based on the fact that in the event of winding up of a company, common shareholders will receive an amount equivalent to tangible book value after liquidating most of its physical assets. Intangible assets like goodwill, patents, trademarks, although of value, cannot be sold immediately for cash and thus are not a part of the liquidation process.
Calculation of Tangible Book Value
Tangible Book Value = Book Value – (Intangible Assets + Goodwill)
Tangible book value per share = total tangible assets/number of shares outstanding

Importance of Tangible book value

Important points wrt Tangible book value are:
1. Assessing Tangible Book Value is one of the methods to understand return on investment.
2. Tangible Book Value is seen as a superior indicator of the money that could be distributed to common shareholders in the event of liquidation.