This Site Requires Javascript
Burger Menu

Tangible Net Worth

Tangible Net Worth

What is 'Tangible Net Worth'

Tangible net worth is most commonly a calculation of the net worth of a company that excludes any value derived from intangible assets such as copyrights, patents and intellectual property. Tangible net worth is a simple calculation of a company's total tangible assets minus the company's total liabilities. It can also be calculated for individuals, using the same formula of total tangible assets minus total debt liabilities.

Explaining 'Tangible Net Worth'

The tangible net worth calculation is designed to represent the total value of a company's physical assets net of its outstanding liabilities, as based on figures shown in the company's balance sheet. In effect, it indicates an approximation of the liquidation value of the company in the event of bankruptcy or sale.

Calculation

The calculation of tangible net worth for a company essentially includes all a company's physical assets. This includes cash and accounts receivables (AR), inventory, equipment, buildings and real estate, and investments. For an individual, the tangible net worth calculation includes such items as home equity, any other real estate holdings, bank and investment accounts, and major personal assets such as an automobile or jewelry. Relatively insignificant personal assets are not ordinarily included in the calculation for an individual.

Positive and Negative Factors of Tangible Net Worth

The primary positive of the tangible net worth calculation is that it is simpler to do than a total net worth calculation, as it is easier to place an accurate value on physical assets than it is to evaluate intangible assets such as customer goodwill or intellectual property. Intellectual property includes things such as proprietary technology or designs.


Tangible Net Worth FAQ

How do you calculate debt to tangible net worth?

Calculate the debt to tangible net worth ratio by dividing the company's total liabilities by its tangible net worth. This is a more conservative method.

Does tangible net worth include depreciation?

Tangible Net Worth is the tangible assets that remain after deducting liabilities; such assets excludes intangibles such as goodwill and rights to patents or royalties.

What causes tangible net worth decrease?

Usually tax issues. One of the reasons people try to reduce their tangible net worth is to hide assets from the IRS. The IRS closely inspects individuals and businesses with high net worth for audits. This is because of IRS's increasing annoyance with people trying to dodge tax liabilities.

How do you calculate net worth on a balance sheet?

Calculate net worth by subtracting total assets from total liabilities, or look at the net worth section of the balance sheet.

What is tangible net equity?

Tangible Net Equity (TNE) is a health plan's total assets minus total liabilities reduced by the value of intangible assets and unsecured obligations of officers, directors, owners, or affiliates outside normal course of business.

What is tangible net worth of a company?

Tangible net worth is a calculation of the net worth of a company that does not include any value derived from intangible assets such as copyrights, patents, and intellectual property. Tangible net worth for a company is the total value of a company's physical assets.

Further Reading

GAAP goodwill and debt contracting efficiency: evidence from net-worth covenantsGAAP goodwill and debt contracting efficiency: evidence from net-worth covenants
link.springer.com [PDF]
… Prior research looks for accounting and economic effects given pre-existing covenants … the agency costs of debt and thus can be related to the preference for tangible net-worth covenants … more opportunities to increase the variance of their assets and thus transfer wealth from debt …

Industry averages as targets for financial ratiosIndustry averages as targets for financial ratios
www.jstor.org [PDF]
… Prior research looks for accounting and economic effects given pre-existing covenants … the agency costs of debt and thus can be related to the preference for tangible net-worth covenants … more opportunities to increase the variance of their assets and thus transfer wealth from debt …

Financial development and economic growth in underdeveloped countriesFinancial development and economic growth in underdeveloped countries
www.journals.uchicago.edu [PDF]
… Prior research looks for accounting and economic effects given pre-existing covenants … the agency costs of debt and thus can be related to the preference for tangible net-worth covenants … more opportunities to increase the variance of their assets and thus transfer wealth from debt …

Analysis of wealth using micro-and macrodata: A comparison of the Survey of Consumer Finances and Flow of Funds accountsAnalysis of wealth using micro-and macrodata: A comparison of the Survey of Consumer Finances and Flow of Funds accounts
www.nber.org [PDF]
… Prior research looks for accounting and economic effects given pre-existing covenants … the agency costs of debt and thus can be related to the preference for tangible net-worth covenants … more opportunities to increase the variance of their assets and thus transfer wealth from debt …

Borrower and lender perceptions of accounting information inBorrower and lender perceptions of accounting information in
search.proquest.com [PDF]
… Prior research looks for accounting and economic effects given pre-existing covenants … the agency costs of debt and thus can be related to the preference for tangible net-worth covenants … more opportunities to increase the variance of their assets and thus transfer wealth from debt …

Housing wealth and consumptionHousing wealth and consumption
papers.ssrn.com [PDF]
… Prior research looks for accounting and economic effects given pre-existing covenants … the agency costs of debt and thus can be related to the preference for tangible net-worth covenants … more opportunities to increase the variance of their assets and thus transfer wealth from debt …

Neural networks and the mathematics of chaos-an investigation of these methodologies as accurate predictors of corporate bankruptcyNeural networks and the mathematics of chaos-an investigation of these methodologies as accurate predictors of corporate bankruptcy
www.computer.org [PDF]
… Prior research looks for accounting and economic effects given pre-existing covenants … the agency costs of debt and thus can be related to the preference for tangible net-worth covenants … more opportunities to increase the variance of their assets and thus transfer wealth from debt …

Financial intermediary capitalFinancial intermediary capital
academic.oup.com [PDF]
… Prior research looks for accounting and economic effects given pre-existing covenants … the agency costs of debt and thus can be related to the preference for tangible net-worth covenants … more opportunities to increase the variance of their assets and thus transfer wealth from debt …

Internal net worth and the investment process: An application to US agricultureInternal net worth and the investment process: An application to US agriculture
www.journals.uchicago.edu [PDF]
… Prior research looks for accounting and economic effects given pre-existing covenants … the agency costs of debt and thus can be related to the preference for tangible net-worth covenants … more opportunities to increase the variance of their assets and thus transfer wealth from debt …

Measuring the probability of financial covenant violation in private debt contractsMeasuring the probability of financial covenant violation in private debt contracts
www.sciencedirect.com [PDF]
… Prior research looks for accounting and economic effects given pre-existing covenants … the agency costs of debt and thus can be related to the preference for tangible net-worth covenants … more opportunities to increase the variance of their assets and thus transfer wealth from debt …


Tags

worth, tangible, assets, financial, company, debt, total, intangible, ratio, liabilities, book, business, wealth, definition, equity, patents, goodwill, include, asset, current, million, real, calculate, balance, fixed, economic, sheet, physical, assess, property, measure, term, terms, trillion, capital, price, owner, meaning, statement, companies, determine, year, measures, consolidated, formula, finance