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PTBV (Price to Tangible Book Value)

Significance of PTBV (Price to Tangible Book Value) of a stock
PTBV is a ratio between share price and tangible book value per share. Generally, PTBV tells us how much investor is paying for each RM of a company’s tangible assets.

What is the importance of PTBV of a stock?

Tangible book value here, refers to the book value of a company’s concrete assets. These tangible assets should be perceptible by touch and can be sold off in exchange of money. For instance, tangible assets include factory, lorries, machines and equipments.

In case of bankruptcy, tangible assets of a company could be sold off in exchange of money to repay debt holder / shareholder.

Hence, PTBV is an important indicator as it shows how much shareholder can get back in case of liquidity. For example, Company A has the below characteristics:

Share price
: RM2
Number of outstanding stocks
: 1,000,000
Tangible book value
: RM1,600,000

How to calculate PTBV (Price to Tangible Book Value)?

With this, it means that shareholders are paying RM1.25 for every RM1 of company’s tangible assets. This indicates that shareholders are paying more for a lesser amount of tangible assets. If bankruptcy really happens, the shareholder will definitely incur losses as the tangible assets available to sell off is less than the share price. Likewise, if the PTBV ratio is below 1, the stock could be considered as undervalue because the investors is buying in more tangible assets at  a cheaper price.

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