‘Net tangible asset
Net tangible assets-the Accounting term is calculated as total assets minus intangible assets such as goodwill, patents and trademarks, less all liabilities and the par value of preferred stock. In other words, its focus is on physical assets such as equipment, property and equipment, and stocks and cash instruments. Net tangible assets also known as “net asset value” or “book value”. To calculate the net asset value per bond or per share of preferred stock or common stock, divide the net tangible assets figure by the number of bonds or preferred shares or ordinary shares.
Breaking down the ‘net tangible asset
Net tangible assets intended to represent the total company amount of physical assets minus the liabilities of the company. The calculation of net tangible assets is the fair market value of tangible assets of the company and subtracted the market value of liabilities. Tangible assets can include items such as cash; inventory; accounts receivable; property, plant, and equipment (PPE); and other assets. Liabilities include accounts payable, long-term debt and other similar obligations.
For example, if a company has total assets of $ 1 million., total liabilities of $100,000 and intangible goodwill $ 100,000, its net tangible assets amount is 800 000$. It does this by subtracting $100,000 in both liabilities and goodwill from total assets of $ 1 million.
The importance of net tangible assets
This measurement of material assets of the company is important because it allows the management team of the company to assess its assets excluding obsolete or hard-to-assess intangible assets. The company’s return on assets (roa), for example, is often more accurate when the net tangible assets used in the calculation.
The usefulness of obtaining pure material assets, however, varies depending on the industry. Manufacturers of medical equipment, for example, have high levels of valuable intangible assets. It is therefore important to view prices and book company (P/B) value and compare it with similar companies, to assess performance.
Net Tangible Assets Per Share
Net tangible assets per share is sometimes used instead of the net tangible assets of the measurements. Net tangible assets per share is calculated with net the company a sizeable amount of assets and dividing it by the total number of shares outstanding. If the company has net tangible assets of $1 million and 500,000 shares outstanding, its net tangible assets per share is $2.
Net tangible assets per share is useful when carrying out comparative analysis of companies in the industry. Auto manufacturers, for example, may have a high net tangible assets per share, while company-software developer with a high level of intangible assets may have a much smaller amount per share. It is therefore important to use this measure only in the analysis of companies in the same industry.