What are Net Tangible Assets (NTA)?

Net tangible assets are an accounting term also known as net asset value or book value. It can be calculated by taking the total assets of a business and subtracting any intangible assets like goodwill, patents or trademarks, par value of preferred stocks, and removing all liabilities to arrive at the figure.

Net Tangible Assets Formula

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Net Tangible Assets | Calculate Net Tangible Assets Per Share (wallstreetmojo.com)

where,

  • Total Assets = Total assets are the total of the asset side of the balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company.read more. It includes all current assetsAll Current AssetsCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more, long-term tangible assets, as well as intangible assets and goodwill.Intangible Assets = These assets are those which we can’t touch or feel, for example, goodwill, trademark, copyrights, or patents. Please note that most balance sheet reports goodwillReports GoodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company’s net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company’s net identifiable assets from the total purchase price.read more separately from intangible assets. In our Net tangible asset formula, do not forget to take the sum total of both.Total Liabilities = These include current liabilitiesThese Include Current LiabilitiesCurrent Liabilities are the payables which are likely to settled within twelve months of reporting. They’re usually salaries payable, expense payable, short term loans etc.read more, long-term debt, and other long-term liabilities.

Net Tangible Assets Example

SupposSuppose Company A has total assets worth $1.5 million on its books, has total liabilities worth$200 million, and intangible assets worth $500 million. After subtracting both of them from total assets, net assetsNet AssetsThe net asset on the balance sheet is the amount by which your total assets exceed your total liabilities and is calculated by simply adding what you own (assets) and subtract it from whatever you owe (liabilities). It is commonly known as net worth (NW).read more would come to $800 million.

Starbucks Net Tangible Assets Calculation

Now that we calculate NTA of Starbucks.

source: Starbucks SEC Filings

Starbucks (2017)

  • The Total Assets (2017) = $14,365.6Total Intangible Assets (2017) = $516.3 + $1539.2 = $1980.6Total Liabilities (2017) = $8,908.6NTA Formula (2017) = Total Assets (2017) – Total Intangible Assets (2017)  – Total Liabilities (2017) = $14,365.6 – $1980.6 – $8,908.6 = $3,476.4

Starbucks (2016)

  • The Total Assets (2016) = $14,312.5Total Intangible Assets (2016) = $441.4 + $1,719.6 = $2161.0Total Liabilities (2016) = $8,421.8NTA Formula (2016) = Total Assets (2016) – Total Intangible Assets (2016) – Total Liabilities (2016) = $14,365.6 – $1980.6 – $8,908.6 = $3,729.7

Significance and Use of NTA

This measure is considered very useful in analyzing a company’s assets, but their level of relevance might be different for any industry one might be dealing with. The relevance of NTA is largely dependent on how important intangible assets are for a specific industry since they are taken away while calculating this measure.

  • In the case of Oil & Gas companies or car manufacturers, NTAs are very high. They can secure debt financing relatively easily by pledging their tangible assets.In technology companies, however, intangible assetsIntangible AssetsIntangible Assets are the identifiable assets which do not have a physical existence, i.e., you can’t touch them, like goodwill, patents, copyrights, & franchise etc. They are considered as long-term or long-living assets as the Company utilizes them for over a year. read more are pretty large. This results in a lower amount of NTAs.

Net Tangible Assets Per Share

This measure is used in place of NTA for a useful comparison of companies operating within a specific industry. This is because different industries tend to have widely varying ratios of tangible assetsTangible AssetsTangible assets are assets with significant value and are available in physical form. It means any asset that can be touched and felt could be labeled a tangible one with a long-term valuation.read more and intangible assets, and hence the relevance of this measure differs.

Net tangible assets per share are calculated by dividing the NTA figure by the total number of shares outstanding for a company.

  • Net Tangible Assets per share formula = NTA / Total number of shares

Example of Net Tangible Assets Per Share

In the example we discussed earlier, if Company A has NTA worth $800 million and has 200 million outstanding shares, NTA per share would work out to $4.00 per share.

Net Tangible Assets Per Share of Starbucks

  • NTA (2017) = $14,365.6 – $1980.6 – $8,908.6 = $3,476.4Total Number of Shares (2017) = 1449.5Net Tangible Assets per Share (2017) = 3,476.2 / 1449.5 = $2.4

  • NTA (2016) = $14,365.6 – $1980.6 – $8,908.6 = $3,729.7Total Number of Shares (2016) = 1471.6NTA per Share (2016) = $3,729.7 / 1471.6 = $2.5

Net Tangible Assets Video

This has been a guide to Net Tangible Assets, its formula, example, and calculations. Here we also discuss Net Tangible Assets Per Share and why it is important? You may also go through the recommended articles on basic accounting –

  • Calculate Tangible Net WorthReal AssetsList of Intangible Assets Examples of Outstanding Shares