Tangible Net Worth

Tangible Net Worth is the total net worth of the company that does not include the value of the intangible assets of the company like copyrights, patents etc and is calculated as Total Assets minus total liabilities and intangible assets.

Definition of Tangible Net Worth

Tangible Net Worth refers to the worth of the company. It includes only tangible assets of physical existence and excludes intangible e.g., patents, copyrights, intellectual property, etc.

Examples of tangible assetsExamples Of Tangible AssetsAny physical assets owned by a firm that can be quantified with reasonable ease and are used to carry out its business activities are defined as tangible assets. For example, a company's land, as well as any structures erected on it, furniture, machinery, and equipment.read more include Real estate, cash, plant and machinery, homes, etc. On the other hand, examples of intangible assetsExamples Of Intangible AssetsSome of the most common intangible assets are logos, self-developed software, customer data, franchise agreements, Newspaper Mastheads, license, royalty, Marketing Rights, Import Quotas, Servicing Rights etc.read more are Intellectual property, goodwill, patents, copyrights, etc. Anything that does not have physical existence and cannot be felt or touched is known as an intangible asset.

Tangible Net Worth Formula

Following is the formula:

Tangible Net Worth Formula = Total Assets – Total Liabilities – Intangible Assets
Tangible-Net-Worth

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For eg:
Source: Tangible Net Worth (wallstreetmojo.com)

Calculation of Tangible Net Worth (with Example)

Given below is the balance sheet for fiscal 2012-13 of a company in the manufacturing industry. It is in the United States and prepares their finances according to US GAAP. An analyst wants to analyze the balance sheet position of the firm and calculate the tangible net worth of the company.

We have taken liabilities of the company to expect the shareholder equity, retained earningsRetained EarningsRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company.read more, and ESOP’s.

Example 1

Solution

Tangible Net Worth Example 1.1jpg

Tangible Net Worth can be calculated as follows,

Tangible Net Worth Example 1.4jpg

= $1,680 – $1,195 – $260

Example 1.2jpg

TNW = $225

Advantages

  • It is also a valuation method. If the company is making constant profits, we can judge the net worth of the company.
  • Calculating it is quite simple.
  • Reviewing the net worth statements over time can help a company determine it’s strategic initiatives. It also helps to determine much liquidity does the business has with them to start the initiatives.

Disadvantages

Conclusion

Regardless of the financial situation, knowing the tangible net worth can help a company evaluate its current financial health. It also helps plan for the financial future. By knowing where it stands financially, a company will be more mindful of its financial activities. It would be better prepared to make sound financial decisions and more likely to achieve short-term and long-term financial goals.

Recommended Articles

This article has been a guide to Tangible Net Worth and its definition. Here we discuss how to use the formula of tangible net worth for calculation along with practical examples, advantages, and disadvantages. You can learn more about accounting from the following articles –

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