Net Tangible Assets

What Are Net Tangible Assets?

The term net tangible assets alludes to the total physical assets of a company minus every intangible asset and liabilities. At the end of the day, net tangible assets center around physical assets, for example, property, plant, and equipment (PP&E), as well as inventories and cash instruments. Physical assets are whatever is listed on a company's balance sheet while intangible assets are those without a physical form. A company's net tangible assets can help it secure financing and determine how much risk it conveys.

Grasping Net Tangible Assets

As verified above, net tangible assets are any physical assets less intangible assets and liabilities. To work out this, a company takes the fair market value (FMV) of its tangible assets and subtracts the fair market value of its liabilities. Remember that physical assets allude to whatever can be touched and can be found listed on a company's [balance sheet](/balancesheet, for example,

• PP&E
• Raw materials
• Inventory
• Accounts receivable
• Completed merchandise
• Cash

Intangible assets, then again, are those that have no tangible form, for example, trademarks, goodwill, patents, and copyrights. Liabilities, of course, allude to any debts the company owes, whether that is current or non-current, including accounts payable, long-term debt, and other comparable obligations.

For example, on the off chance that a company has total assets of $1 million, total liabilities of $100,000, and intangible goodwill of $100,000, its net tangible asset amount is $800,000. This is derived by subtracting $200,000 (the sum of both liabilities and goodwill) from the value of the company's total assets of $1 million.

The value of a company's net tangible assets may likewise be alluded to as its net asset value (NAV) or book value. This value is important to a company as it provides a window into how much risk it conveys — notably, its liquidity and solvency. It can likewise be utilized to help it access financing to meet its future objectives.

Benefits and Disadvantages of Net Tangible Assets

This measurement of a company's tangible assets is important because it permits an association's management team to investigate its asset position without including obsolete or challenging to value intangible assets. A company's return on assets (ROA), for example, is in many cases more accurate when net tangible assets are utilized in the calculation.

The handiness of inferring net tangible assets, nonetheless, shifts across industries. Medical gadget manufacturers, for example, have high levels of valuable intangible assets. This means it's important to look at a company's price-to-book (P/B) value and compare it against comparative companies to measure performance.

A few companies utilize their net tangible assets per share value in lieu of the net tangible assets measurement. To compute a company's net tangible asset per share of common stock, partition its net tangible assets figure by the number of outstanding common shares. In the event that a company has net tangible assets of $1 million and 500,000 shares outstanding, its net tangible asset value per share is $2.

This value is helpful while leading a comparative analysis of companies inside a industry. Auto manufacturers, for example, may have high net tangible assets per share, while a software company with a high level of intangible assets might have a much lower number per share. It is subsequently important to utilize this measure just while examining companies inside a similar industry.

Genuine Examples of Net Tangible Assets

Allow us to look at a few real data for Amazon and Meta and work out the net tangible assets for each utilizing their annual 10-K filings.

• Amazon: The ecommerce monster reported total assets of $321.2 billion, total liabilities of $227.8 billion, and goodwill of $15.01 billion on Dec. 31, 2020. Its subsequent net tangible assets were $78.39 billion, or $321.2 billion less $227.8 billion and $15.01 billion.
• Meta: The company behind the Facebook platform had total assets of $133.4 billion, total liabilities of $32.3 billion, intangible assets of $894 million, and goodwill of $18.7 billion on Dec. 31, 2019. To compute the value of Meta's net tangible assets around then, subtract its intangible assets, goodwill, and total liabilities from its total assets. Along these lines, its net tangible assets were approximately $81.5 billion.

Highlights

• Net tangible assets are the physical assets a company claims less any intangible assets and liabilities.
• Net tangible assets permit analysts to zero in on a company's physical assets in disengagement.
• Companies can access financing and determine how much risk they carry based on the value of their net tangible assets.
• To compute a company's net tangible assets, subtract its liabilities, par value of preferred shares**,** and any intangible assets, like goodwill, patents, and trademarks from its total assets.
• They are listed on a company's balance sheet and demonstrate its book value.