Edited by 
Edited by 
Reviewed by 
Net tangible assets represent a company’s physical assets minus its liabilities and intangible assets. For investors, lenders and business owners, net tangible assets can offer a clearer picture of a company’s core value — namely, what would be left if all debts were paid and only tangible, sellable items remained. This can be helpful when evaluating a company’s financial health, valuing a business for sale or assessing how well a firm is backing its shares with real-world assets.
A financial advisor can help you analyze what net tangible assets and other numbers mean for your personal investments, business goals or acquisition targets.
Net Tangible Assets: What They Are and How They Work
As mentioned above, net tangible assets are the physical, measurable assets of a company minus any liabilities and intangible assets (these include patents, goodwill and trademarks). They represent the hard, liquidatable value of a business — the resources that a business theoretically could sell off in the event of a liquidation or leveraged in financing decisions. This makes net tangible assets a key indicator of a company’s baseline value.
Investors and analysts use the calculation of net tangible assets to assess the true, underlying value of a company. For value investors, a company with a market capitalization below the value of its net tangible assets might be considered undervalued. This could potentially signal a buying opportunity. Business buyers and lenders may also rely on this figure when deciding whether to acquire or finance a company.
Formula for Net Tangible Assets
Calculating net tangible assets (NTA) means stripping out non-physical assets — like intellectual property or brand reputation — from the balance sheet, along with deducting all debts or obligations. What remains is the company’s tangible equity.
The formula for net tangible assets is as follows:
Net Tangible Assets = Total Assets – Intangible Assets – Total Liabilities
This measure doesn’t tell the whole story of a business’s worth or profitability. But it’s useful in industries with heavy reliance on tangible goods — like manufacturing, logistics or real estate — where physical assets play a larger role in operations and valuation. You can compare net tangible assets across companies, sectors or time periods.
Examples of Net Tangible Assets
Net tangible assets are physical or financial in nature. Companies can generally sell or liquidate them to raise cash. They appear on the balance sheet under current and non-current assets, minus any intangibles or liabilities.
Here are some key examples of net tangible assets:
Cash is the most liquid asset and is always included in the calculation of net tangible assets. This category includes physical currency, checking and savings account balances and short-term, highly liquid investments such as Treasury bills or money market funds. Companies can immediately access cash, whether to meet liabilities or invest in opportunities. As such, it provides a reliable snapshot of a company’s financial strength.
Companies with large cash reserves are often better positioned to weather economic downturns, fund operations without debt or reinvest in growth. In NTA calculations, this is a baseline figure that adds stability and liquidity to the asset profile.
Accounts Receivable
Accounts receivable refers to the money owed to a business by its customers for goods or services already delivered. This asset can be considered tangible because it’s tied to actual sales and expected cash flow. It’s included in the net tangible assets formula at its net realizable value, accounting for the likelihood of collection.
While receivables are valuable, they come with risks — namely, the chance that some customers may default. That’s why companies often create an allowance for doubtful accounts. This helps ensure the NTA figure reflects a realistic valuation of this asset.
Inventory
Inventory includes raw materials, work-in-progress goods and finished products ready for sale. It’s counted as a tangible asset because it represents physical items with measurable value. Inventory is an especially important component for manufacturers, wholesalers and retailers, where goods drive revenue.
However, it’s critical to carefully evaluate inventory. Obsolete or unsold inventory can drag down asset quality. It can also overstate the NTA if not properly adjusted for impairment or shrinkage.
Property, Plant and Equipment (PP&E)
These long-term assets represent the physical infrastructure a company uses to operate, like buildings, machinery, land and vehicles. PP&E is included in the net tangible assets calculation at its book value, which reflects historical cost minus accumulated depreciation.
PP&E can provide significant value, but it may also carry depreciation-related complications. Older assets may be worth less than their book value, and specialized equipment may not have a robust secondary market. Still, in capital-intensive industries, PP&E often represents a major share of net tangible assets.
Investments in Physical Assets
Investments in tangible physical assets — such as real estate, warehouses or infrastructure — are part of NTA if they are not classified as intangible or speculative holdings. These may include buildings owned for investment purposes or mineral rights with proven extractable value.
Such investments can enhance the asset strength of a company, particularly if they appreciate over time. However, their value in the NTA formula is typically reported at cost or book value, unless revalued according to accounting standards.
The Importance of Net Tangible Assets
Knowing a company’s net tangible assets offers a clear look into its underlying financial stability. For investors, lenders and potential buyers, NTA serves as a benchmark of real-world value.
Here are some of the reasons net tangible assets represent an important and useful metric:
- Indicator of financial strength. Companies with high NTA and low liabilities are often in a better position to meet obligations, reinvest in growth and weather economic uncertainty.
- Baseline for liquidation value. NTA reflects the value that could remain if a business were dissolved and its tangible assets sold off. This provides a conservative starting point for worst-case scenarios.
- Tool for value investing. If a company’s stock price trades below its NTA per share, it may suggest the stock is undervalued and could present a buying opportunity.
- Collateral assessment for financing. Lenders prefer funding companies with strong tangible assets that can be repossessed or sold if necessary. This makes NTA critical in acquisition or expansion financing.
Limitations of Net Tangible Assets
While net tangible assets provide a helpful snapshot of a company’s financial foundation, they don’t tell the whole story. Not all businesses rely on physical assets to create value, and not all assets are fully reflected on the balance sheet.
The following are some of the limitations of net tangible assets:
- Doesn’t reflect asset-light business models. Tech, service or intellectual property-driven companies may have low NTAs but still generate high profits. This makes NTA less useful for evaluating such firms.
- Book value may understate market value. Tangible assets like real estate or equipment may be recorded at depreciated cost rather than current market value. This can lead to undervaluation in the NTA calculation.
- Ignores cash flow and profitability. A company may have substantial net tangible assets but still be unprofitable or have weak operating cash flow, which NTA alone won’t reveal.
- Lacks context without supporting metrics. Evaluating NTA in isolation can lead to misleading conclusions. It’s most effective when used alongside other financial indicators like earnings, revenue and return on assets.
Bottom Line
Net tangible assets offer a way to assess a company’s real-world value by focusing on physical, measurable resources. Whether you’re evaluating a potential investment, securing financing or valuing a business for sale, knowing how to calculate and interpret NTA can provide important context for financial decision-making. However, it’s just one piece of the puzzle. You’ll want to use it alongside other metrics to create a well-rounded picture of a company’s health and potential.
Investment Planning Tips
- A financial advisor can help you mitigate risk for your portfolio. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to diversify your portfolio, here’s a roundup of 13 investments to consider.
Photo credit: ©iStock.com/Vadym Pastukh, ©iStock.com/Eleganza, ©iStock.com/lechatnoir