Tangible Book Value is simply subtracting a company’s liabilities from its assets in order to access a company’s net worth if it were to be completely liquidated. It’s that simple.
Unlike traditional Book Value, TANGIBLE book value does not take into account the company’s “Goodwill.”
Remember, Goodwill, is not a physical asset. We are only concerned with the physical things that can be liquidated.
Consider tangible book value as a way to assess your own financial situation.
The average person has a house, car, clothes, jewelry and furniture. In other words, “ASSETS“, physical items that are worth some sort of value and can be sold.
The average person also has a mortgage, car loans, and credit card loans. In other words, “LIABILITIES“, debts that must be paid!
If you were to sell all of your ASSETS, lets say for $100,000 and pay off your LIABILITIES which are $75,000….
Then your Tangible Book Value would be $25,000