What Are Net Tangible Assets?
Let me explain net tangible assets directly: they're the total physical assets of a company minus all its intangible assets and liabilities. You focus on things you can touch, like property, plant, and equipment, inventories, and cash instruments. Intangible assets, which don't have a physical form, get left out. This figure appears on the balance sheet and gives you the company's book value. It helps in securing financing and gauging risk levels.
Key Takeaways
Net tangible assets include all physical assets a company owns, minus intangibles and liabilities. They're listed on the balance sheet and show book value. Calculate them by subtracting liabilities, par value of preferred shares, and intangibles like goodwill, patents, and trademarks from total assets. This lets you isolate physical assets for analysis. Companies use this to check risk and get financing.
Understanding Net Tangible Assets
To understand this, take the fair market value of tangible assets and subtract the fair market value of liabilities. Tangible assets are items on the balance sheet you can see and touch: property, plant, and equipment; raw materials; inventory; accounts receivable; finished goods; office equipment; computer software; and cash. Intangibles are things like trademarks, goodwill, patents, and copyrights—they have no physical form. Liabilities are debts, both current and long-term, like accounts payable and loans.
For instance, if a company has $1 million in total assets, $100,000 in liabilities, and $100,000 in intangible goodwill, its net tangible assets come to $800,000. You get that by subtracting the $200,000 total of liabilities and goodwill from the assets. This is also called net asset value or book value. It shows you the company's liquidity and solvency, and it can help in getting loans for future plans.
Advantages and Disadvantages of Net Tangible Assets
This metric lets you assess a company's asset position without factoring in hard-to-value or obsolete intangibles. Your return on assets calculation often becomes more accurate this way. But remember, its usefulness differs by industry. For example, medical device makers have lots of valuable intangibles, so compare price-to-book values with similar companies to evaluate performance properly.
Net Tangible Assets vs. Net Tangible Assets Per Share
Some companies prefer net tangible assets per share instead. Divide the net tangible assets by the number of outstanding common shares. If you have $1 million in net tangible assets and 500,000 shares, that's $2 per share. Use this for comparing companies in the same industry—auto makers might have high values, while software firms with lots of intangibles have lower ones. Stick to intra-industry comparisons.
Real-World Examples of Net Tangible Assets
Let's look at actual numbers from Amazon and Meta using their 10-K filings. For Amazon, as of December 31, 2020, total assets were $321.2 billion, liabilities $227.8 billion, and goodwill $15.01 billion. Subtract liabilities and goodwill from assets, and you get net tangible assets of $78.39 billion.
For Meta, as of December 31, 2019, total assets were $133.4 billion, liabilities $32.3 billion, intangibles $894 million, and goodwill $18.7 billion. Subtract intangibles, goodwill, and liabilities from assets, and net tangible assets come to about $81.5 billion.
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