Definition
Tangible Book Value
Tangible book value is shareholders' equity less intangible assets such as goodwill, giving the net worth backed by physical and financial assets.
By stripping out goodwill and other intangible assets from shareholders' equity, tangible book value focuses on the hard assets that would have value in a liquidation. It is a more conservative measure than reported book value.
For companies with large acquired goodwill, the gap between book and tangible book value can be wide, and a goodwill impairment would erase part of reported equity. Analysts use tangible book value, particularly the per-share figure, to anchor valuation for asset-heavy and financial firms.
Related terms
- Book ValueBook value is a company's net worth on its balance sheet, total assets minus total liabilities, representing what shareholders own on paper.
- GoodwillGoodwill is the premium a company pays to acquire another over the fair value of its identifiable net assets, recorded as an intangible asset.
- Intangible AssetsIntangible assets are non-physical assets with economic value, such as patents, trademarks, software, licences and goodwill.
- Shareholders' EquityShareholders' equity is the residual interest in a company's assets after deducting liabilities, comprising share capital, reserves and retained earnings.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.