Net Tangible Assets is the resultant value derived as the company’s total assets less all intangible assets like patents, goodwill, and trademarks minus all the liabilities and stock or in other words net intangible asset is the total of all the physical assets like plant, machinery, land, buildings, inventories, all-cash instruments, etc.
What are Net Tangible Assets (NTA)?
Net tangible assets is an accounting term, also alternatively known as net asset value or book value. It can be calculated by taking the total assets of a business and subtracting any intangible assets like goodwill, patents or trademarks, par value of preferred stocks and also remove all liabilities to arrive at the figure.
Net Tangible Assets Formula
Net Tangible Assets Formula = Total Assets – Intangible Assets – Total Liabilities
- Total Assets = Total assets is the sum total of the asset side of the balance sheet. It includes all current assets, long-term tangible assets as well as intangible assets and goodwill.
- Intangible Assets = These assets are those which we can’t touch or feel for example goodwill, trademark, copyrights or patents. Please note that most balance sheet reports goodwill separately from intangible assets. In our Net tangible asset formula, do not forget to take the sum total of both.
- Total Liabilities = These include current liabilities, long-term debt, and other long-term liabilities.
Net Tangible Assets Example
Suppose, Company A has total assets worth $1.5 million on its books, has total liabilities worth$200 million and intangible assets worth $500 million, then after subtracting both of them from total assets, net assets would come to $800 million.
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Starbucks Net Tangible Assets Calculation
Now that we calculate NTA of Starbucks.
source: Starbucks SEC Filings
- Total Assets (2017) = $14,365.6
- Total Intangible Assets (2017) = $516.3 + $1539.2 = $1980.6
- Total Liabilities (2017) = $8,908.6
- NTA Formula (2017) = Total Assets (2017) – Total Intangible Assets (2017) – Total Liabilities (2017)
- = $14,365.6 – $1980.6 – $8,908.6 = $3,476.4
- Total Assets (2016) = $14,312.5
- Total Intangible Assets (2016) = $441.4 + $1,719.6 = $2161.0
- Total Liabilities (2016) = $8,421.8
- NTA Formula (2016) = Total Assets (2016) – Total Intangible Assets (2016) – Total Liabilities (2016)
- = $14,365.6 – $1980.6 – $8,908.6 = $3,729.7
Significance and Use of NTA
This measure is considered very useful in the analysis of a company’s assets bit their level relevance might be different for any industry one might be dealing with. The relevance of NTA is largely dependent on how important intangible assets are for a specific industry since they are taken away while calculating this measure.
- In the case of Oil & Gas companies or car manufacturer, NTAs are very high. They can secure debt financing relatively easily by pledging their tangible assets.
- In technology companies, however, intangible assets is pretty large. This results in a lower amount of NTAs.
Net Tangible Assets Per Share
This measure is used in place of NTA for a useful comparison of companies operating within a specific industry. This is because different industries tend to have widely varying ratios of tangible assets and intangible assets and hence the relevance of this measure differs.
Net tangible assets per share are calculated by dividing the NTA figure by the total number of shares outstanding for a company.
- Net Tangible Assets per share formula = NTA / Total number of shares
Net Tangible Assets Per Share Example
In the example, we discussed earlier, if Company A has NTA worth $800 million and has 200 million outstanding shares, NTA per share would work out to $4.00 per share.
Net Tangible Assets Per Share of Starbucks
- NTA (2017) = $14,365.6 – $1980.6 – $8,908.6 = $3,476.4
- Total Number of Shares (2017) = 1449.5
- Net Tangible Assets per Share (2017) = 3,476.2 / 1449.5 = $2.4
- NTA (2016) = $14,365.6 – $1980.6 – $8,908.6 = $3,729.7
- Total Number of Shares (2016) = 1471.6
- NTA per Share (2016) = $3,729.7 / 1471.6 = $2.5
Net Tangible Assets Video
This has been a guide to what is Net Tangible Assets, its formula, example and calculations. Here we also discuss Net Tangible Assets Per Share and why it is important? You may also go through the recommended articles on basic accounting –