GLOSSARY // Fundamentals
Price-to-Tangible-Book
Bank analysts quote valuations in price-to-tangible-book: share price divided by tangible book value per share. Below 1.0x, the market prices the bank's equity at less than the marked value of its net assets; the premium above 1.0x is what the market pays for the franchise — the deposit base, the lending relationships, the earnings power.
The multiple is anchored by profitability. A bank earning a 15% return on tangible equity deserves a much richer multiple than one earning 6%, because each dollar of tangible book compounds faster; in practice high-quality U.S. banks have commanded 1.5-2x tangible book while weak ones languish below 1x for years. "Cheap at 0.7x" is only cheap if the returns on that book are not permanently impaired.
Deep-value investors use it beyond banks as a hard-asset floor, but the same caveat from tangible book applies: for asset-light businesses the denominator is close to meaningless, and a 25x price-to-tangible-book at a software company is an artifact, not a valuation signal.
A bank has tangible book value per share of $12 and trades at $15: P/TBV = 15 / 12 = 1.25x. It earns $1.80 per share, a 15% return on tangible book. A rival at 0.8x TBV earns just 5% on its book — the discount is not a gift, it is the market's verdict on those returns.
Related terms
Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.