Net tangible assets of a company, also known as net asset value or book value, includes the total assets of the company, less
- Intangible assets such as goodwill, patents, and trademarks
- All liabilities
- Par value of preferred stock
The net tangible assets ratio shows the actual amount of tangible assets for each ordinary share of the company, and indicates the worth of each share in a company in the eventuality of liquidating all assets, and paying off all debts.
The formula to obtain the net tangible assets ratio is to divide the net tangible assets figure by the number of bonds, shares of preferred stock, or shares of common stock.
(Net Tangible Assets Ratio = Shareholder's Equity - Intangible Assets - Preference Shares) / Total Shares
Financial ratios provide valuable information on a company’s financial health by reconciling unit differences and revealing facts hidden behind the numbers. The definition of net tangible asset ratios help investors determine the attractiveness of a company’s stock valuations and determine the company’s credit worthiness.
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