How Do You Value A Stock Using Tangible Book Value?
With the stock market tumbling, PE ratios aren’t exactly helpful these days. Many investors are looking to different methods of valuation, such as price to book, which compares the price per share with the equity (assets minus liabilities) per share. This method is useful when trying to establish a floor or a price below a stock that should serve as a minimum price (i.e. the break up value). Unfortunately, with so many companies having done big mergers and acquisitions over the years, the balance sheets have been tainted by the presence of “goodwill”, which is the price paid in excess of “fair value” for acquisitions. I believe that a better method than price to book value is to use the price to TANGIBLE book value, which I describe below. Locate the balance sheet. Find the Common Equity (near the bottom). Subtract “Intangibles” and “Goodwill”, located in the Assets section. You have calculated the Tangible Equity or Tangible Book Value. Divide Tangible Book Value by the number of shar
