What is ‘Tangible Net Worth’
It is most typically used to calculate a company’s net worth by excluding any value generated from intangible assets, such as copyrights, patents, and intellectual property, from the computation. Tangible net worth may be calculated by subtracting the entire value of a company’s tangible assets from the total value of the company’s liabilities. Individuals may also determine their net worth by using the same method as businesses: total tangible assets minus total debt obligations.
Explaining ‘Tangible Net Worth’
When a company’s tangible net worth is calculated, the entire value of the company’s physical assets is subtracted from the total value of the company’s outstanding obligations. This calculation is based on the data presented on the company’s balance sheet. This figure is an estimate of the company’s liquidation value in the event of bankruptcy or sale.
Calculation
The computation of a corporation’s tangible net worth effectively takes into account all of the physical assets owned by the organization. Cash and accounts receivable (AR), inventory, equipment, buildings and real estate, and investments are all included in this category. The measurement of a person’s tangible net worth includes items such as house equity, any other real estate holdings, bank and investment accounts, and large personal possessions such as a car or jewelry, among other things. Personal assets that are seen to be minor by comparison are often excluded from the computation of an individual’s net worth.
Positive and Negative Factors of Tangible Net Worth
There is one major advantage to using a tangible net worth calculation rather than a total net worth calculation. This is because it is much easier to place an accurate value on physical assets than it is to evaluate intangible assets such as customer goodwill or intellectual property, which are difficult to value accurately. Intellectual property encompasses items like proprietary technologies and designs, among other things.
