Net Tangible Assets (NTA)

After subtracting all the items a firm owes, net tangible assets (NTA) refer to all the physical, tangible things a company truly possesses. To put it another way, NTA is a company’s total assets minus intangible assets and total liabilities. The entire worth of a company’s net tangible assets is referred to as its “book value” or “net asset value.” Divide the net tangible asset figure by the number of shares of common stock outstanding to get the net tangible asset per share of common stock.

Organizations own a wide range of things. The organization claims unmistakable things, for example, the structure it works from, the work areas and seats its staff sit in, the PCs its staff deals with, and the merchandise the organization delivers and sells. Subtract a company’s liabilities, preferred stock par value, and any intangible assets, such as goodwill, patents, and trademarks, from its total assets to arrive at its net tangible assets. Because it is a physical thing that can be sold or transferred, real estate is also called a tangible asset.

The formula for Net Tangible Assets (NTA)

NTA = Total assets – Intangible assets – Total liabilities

Where:

Total assets, which may be seen on a company’s balance sheet, comprise both tangible and intangible assets.

Goodwill, trademarks, and copyrights are examples of intangible assets that do not have a physical existence.

Total liabilities, which may be seen on a company’s balance sheet, comprise both current and non-current obligations.

The term “net tangible assets” refers to a company’s total physical assets less any liabilities. The fair market value of a company’s tangible assets is subtracted from the fair market value of its liabilities to arrive at net tangible assets. Intangible assets, or those that are difficult to quantify and sell, are also owned by a business. A company’s brand name and brand awareness, for example, is an intangible asset.

It is hard to put dollar esteem on precisely how much its image name and brand notoriety are worth. The brand name and picture are additionally not physical, substantial resources. Unmistakable resources can incorporate things like money, stock, records of sales, and property, plant, and equipment (PPE). Liabilities include accounts payable, long-term debt, and other similar obligations. Understanding the amount of NTA is important because:

  • Management may use NTA to assess their asset position without taking into account intangible assets. In essence, NTAs omit intangible assets that are difficult to evaluate.
  • Because it owns more assets to serve as collateral for loans, a firm with a high NTA may get acquisition funding more readily.
  • NTA can be used to determine company risk levels such as solvency and liquidity.

When net tangible assets are utilized in the calculation of a company’s return on assets (ROA), for example, the result is frequently more accurate. It’s crucial to note that while determining a company’s NTA has advantages, its use varies considerably depending on the industry. Medical device companies, for example, frequently have intangible assets (patents) that are considerably more valuable than their actual assets.

Then again, landholding organizations own next to zero immaterial resources. Each organization likewise has liabilities at a given time. One such responsibility comes as portions of stock the organization has given. At the point when an organization issues portions of stock, different financial backers purchase those offers and become part proprietors of an organization. The value of determining net unmistakable resources, nonetheless, shifts across businesses.

NTA/share (Net tangible assets per share) is an extension of net tangible assets that illustrates, in principle, how much money each shareholder would get if the firm were to liquidate. It’s determined by dividing a company’s net tangible asset number by the total number of outstanding shares. A company’s net tangible assets per share is $2 if it has $1 million in net tangible assets and 500,000 shares outstanding. The NTA/share ratio is important in investment strategy since it may be used to assess whether a business is cheap or overpriced, as well as whether the share price correctly reflects the firm’s net assets.

Information Sources:

  1. wise-geek.com
  2. corporatefinanceinstitute.com
  3. investopedia.com