What are Net Tangible Assets?
Net Tangible Assets (NTA) is the value of all physical (“tangible”) assets minus all liabilities in a business. In other words, NTA are the total assets of a company minus intangible assets and total liabilities. The total value of net tangible assets are sometimes referred to as the company’s “book value” or “net asset value.”
Formula for Net Tangible Assets (NTA)
NTA = Total assets – Intangible assets – Total liabilities
- Total assets include tangible and intangible assets and can be found on a company’s balance sheet.
- Intangible assets are those that lack a physical form – such as goodwill, trademarks, copyrights.
- Total liabilities include current and non-current liabilities and can be found on a company’s balance sheet.
Example of Net Tangible Assets (NTA)
For example, Company A reports total assets of $1 million, total liabilities of $500,000, intangible assets of $200,000. To calculate the NTA:
NTA = $1 million – $200,000 – $500,000 = $300,000
Importance of Net Tangible Assets (NTA)
Understanding the amount of NTA is important because:
- NTA allows management to determine its asset position without considering intangible assets. Essentially, NTAs exclude difficult-to-value intangible assets.
- A company with high NTA is able to obtain acquisition financing more easily since it owns more assets to use as security for loans.
- NTA can be used to determine company risk levels such as solvency and liquidity.
It is important to know that although determining the NTA for a company offers benefits, its usefulness varies greatly across industries. For example, medical device manufacturers often own intangible assets (patents) that are far more valuable than their tangible assets. On the other hand, real estate holding companies own little to no intangible assets.
Net Tangible Assets (NTA) per Share
Net tangible assets per share (NTA/share) is an extension of NTA that shows, in theory, the money that each shareholder would receive if the company were to liquidate. The NTA/share is a useful ratio in investment strategy as it can help determine whether a company is undervalued or overvalued or whether the share price accurately reflects the net assets of the company.
Formula for NTA per Share
Net Tangible Assets per Share = NTA / Shares outstanding
Example of NTA per Share
Recall from the example above where Company A reported total assets of $1 million, total liabilities of $500,000 and intangible assets of $200,000 for a resulting $300,000 in net tangible assets. Now, assume that there are 100,000 shares outstanding. To determine the NTA per share:
NTA per share = $300,000 / 100,000 = $3 per share
If shares of this company were trading on the market at $3 per share, then the NTA per share figure would imply that the book value of Company A is at fair market value.
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