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Net Tangible Assets



Definition

Net Tangible Assets refers to the total value of a company’s physical assets, excluding any intangible assets such as patents, copyrights, and goodwill. It is calculated by subtracting a company’s liabilities and intangible assets from its total assets. Therefore, it presents a clear picture of a company’s immediate financial health and its tangible worth.

Phonetic

The phonetics for “Net Tangible Assets” would be: Net – /nɛt/Tangible – /ˈtændʒəbəl/ Assets – /ˈæsɛts/

Key Takeaways

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  1. Definition: Net Tangible Assets refer to an enterprise’s total physical assets (like buildings, land, machinery, etc.) minus intangible assets and liabilities. It represents the net “real-world” value of a company’s physical items that can be touched and seen.
  2. Importance: This metric is crucial in financial analysis as it provides an accurate picture of a company’s fair value. It helps investors assess the company’s worth and make informed investment decisions. In case of liquidation, tangible assets are the ones that can be sold and converted into cash.
  3. Assessment: Net Tangible Assets are assessed through a company’s balance sheet. It can be calculated by subtracting the total liabilities and intangible assets from the company’s total assets. A high NTA could indicate a financially stable company, whereas a low or negative NTA could be a sign of financial trouble.

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Importance

Net Tangible Assets (NTA) is an important finance term in business as it gives investors a more accurate view of a company’s valuation. Essentially, it represents the total value of a company’s physical assets, excluding any intangible assets like goodwill, patents, and intellectual property, as well as liabilities. This measure is particularly crucial when conducting investment analysis as it allows for the assessment of a company’s worth if it were to be liquidated or sold. In other words, the NTA value assesses what a company’s physical substance is truly worth, which is especially relevant in the evaluation of companies with significant physical assets, providing shareholders and prospective investors with a more concrete basis for judging a company’s valuation.

Explanation

Net Tangible Assets serve as a key indicator in financial analysis and are extensively used to evaluate a company’s financial health and its intrinsic value. This objective assessment helps investors and creditors make informed decisions about investing or lending capital to a business. It reflects the company’s underlying economic value by separating physical assets (like machinery, buildings or land) and non-physical assets (like goodwill, patents or copyrights) that a company owns, from its liabilities. A high Net Tangible Assets value suggests that a company has valuable tangible assets on hand, which could potentially be sold off to settle debts if requisite, serving as a safety buffer. Moreover, Net Tangible Assets are also used within the company for strategic purposes. Management can reference it to assess the company’s performance, understand the proportion of tangible assets over intangibles, manage assets more efficiently, and guide business expansion plans. It is also used during mergers and acquisitions, as it helps in determining the true value of a company by offering a clearer picture of its tangible assets’ worth. Therefore, the measurement and analysis of Net Tangible Assets have far-reaching implications in finance and business operations.

Examples

1. Microsoft Corporation: At the end of 2020, Microsoft’s total assets were around $304 billion, with its total liabilities equal to $192 billion. However, the value of their intangible assets and goodwill (such as brand name, patents, etc.) was approximately $48 billion. To calculate Net Tangible Assets, we would deduct the total liabilities and intangible assets from the total assets: $304 billion – $192 billion – $48 billion = $64 billion.2. Starbucks Corporation: As of October 2020, Starbucks reported total assets of $29.37 billion, with total liabilities of $28.73 billion. The company’s intangible assets and goodwill added up to $3.94 billion. Having these figures, Net Tangible Assets would be found as: $29.37 billion – $28.73 billion – $3.94 billion = -$3.3 billion, indicating a negative NTA underscored by the high level of intangible assets relative to tangible ones.3. Apple Inc.: In 2020, Apple announced total assets worth $322.85 billion. Their total liabilities amounted to $258.55 billion, and their intangible assets and goodwill accounted for about $18 billion. After deducting these figures, Apple’s Net Tangible Assets are calculated as: $322.85 billion – $258.55 billion – $18 billion = $46.30 billion. This indicates that the company is financially solid.

Frequently Asked Questions(FAQ)

What are Net Tangible Assets?

Net Tangible Assets refer to the total value of a company’s physical assets, excluding any intangible assets like goodwill, patents, and intellectual properties. It includes assets like buildings, equipment, inventory, etc.

How is Net Tangible Asset Value calculated?

Net Tangible Asset Value can be calculated by subtracting a company’s total liabilities and intangible assets from its total assets.

What information does Net Tangible Assets provide about a business?

Net Tangible Assets provide insight on a company’s physical value. It gives investors a more concrete measure of a company’s value, excluding theoretical values from intangible assets.

Why are Net Tangible Assets important?

They are important as they give a realistic estimate of a company’s liquidation value. A high net tangible asset value indicates strong financial health, whereas a low or declining value could be a sign of financial distress.

Are intangible assets included in Net Tangible Assets?

No, intangible assets like goodwill, patents, copyrights, and trademarks, are excluded from the calculation of Net Tangible Assets.

Can the calculation of Net Tangible Assets differ between companies?

Yes. It can vary depending on how each company values their assets and liabilities. Different valuation methods can result in different outcomes.

How often are Net Tangible Assets reported?

Net Tangible Assets are typically reported on a company’s balance sheet, which is generally released every quarter and at the end of a company’s financial year.

Can Net Tangible Assets be negative?

Yes, if a company’s total liabilities exceed its physical assets, then the Net Tangible Assets can be negative. This implies that the company has more debts than it could cover by selling its physical assets.

How is Net Tangible Assets different from Net Asset Value?

While Net Asset Value calculates the value of both tangible and intangible assets minus liabilities, Net Tangible Assets only takes into account tangible assets.

Can Net Tangible Assets give a complete picture of a company’s worth?

Not completely. While it provides useful information on the tangible assets of a company, it doesn’t take into account intangible assets which can significantly contribute to a company’s value.

Related Finance Terms

Sources for More Information


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