What are Net Tangible Assets (NTA)?
Net tangible assets are the portion of a company’s resources that are physical and measurable — after removing intangible assets and all liabilities. In plain terms:
NTA = Total assets − Intangible assets − Total liabilities
Equivalently:
NTA = Shareholders’ equity − Intangible assets
Net tangible assets are used to assess the tangible, “hard” value available to creditors and shareholders (for example in liquidation) and to compare capital intensity across companies and industries.
Key takeaways
– NTA measures a company’s physical asset base after removing intangible assets and all liabilities.
– Formula: NTA = Total assets − Intangible assets − Total liabilities (or NTA = Shareholders’ equity − Intangible assets).
– NTA per share = NTA ÷ number of outstanding common shares.
– Useful for lenders, liquidation analysis, and industry comparisons; less useful for firms whose value primarily comes from intangibles (software, biotech, brands).
– Adjustments are often necessary (fair-market values, off‑balance items, contingent liabilities) to make the metric meaningful.
Understanding Net Tangible Assets — what is included/excluded
Included (tangible assets typically on the balance sheet)
– Cash and cash equivalents
– Accounts receivable (net of allowances)
– Inventory
– Property, plant & equipment (PP&E) — net of accumulated depreciation
– Short- and long-term financial instruments that are tangible
Excluded (intangible assets)
– Goodwill
– Patents, trademarks, copyrights
– Customer lists, non-compete agreements, brand value
– Capitalized R&D (in some accounting regimes), software development costs recorded as intangibles
Liabilities
– Current liabilities (accounts payable, current portion of debt, accrued expenses)
– Non‑current liabilities (long-term debt, pension obligations, deferred tax liabilities, lease liabilities where applicable)
Why NTA matters
– Credit/risk assessment: Lenders may prefer companies with substantial tangible assets for collateral.
– Liquidation/value floor: NTA provides a ballpark “break-up” or liquidation value (subject to market realities).
– Comparative analysis: Helps compare capital-intensive firms (manufacturers, utilities) across peers.
– More conservative valuation base than total assets when intangibles are difficult to value.
Advantages and disadvantages
Advantages
– Simpler, conservative measure of asset backing available to creditors and investors.
– Reduces reliance on potentially overstated or subjective intangible values (e.g., goodwill).
– Useful in distress/liquidation or in asset‑backed lending contexts.
Disadvantages / limitations
– Ignores future earning power embodied in intangibles (brands, patents, customer relationships).
– Book values can be outdated: PP&E may be carried at historical cost minus depreciation and not reflect FMV.
– Off-balance-sheet items and contingent liabilities (operating leases prior to capitalization, guarantees, litigation risk) can distort the picture if not adjusted.
– Not equally relevant across industries — weak for software, biotech, services, and other intangible-heavy sectors.
Net Tangible Assets vs. Net Tangible Assets Per Share
– Net tangible assets: an absolute dollar amount representing the company’s tangible equity value.
– Net tangible assets per share: divides that dollar amount by the number of outstanding common shares to produce a per-share figure for comparison with market price per share.
Example:
– Total assets = $1,000,000
– Intangible goodwill = $100,000
– Total liabilities = $100,000
NTA = 1,000,000 − 100,000 − 100,000 = $800,000
If 500,000 shares outstanding:
NTA per share = 800,000 ÷ 500,000 = $1.60 per share
How to compute Net Tangible Assets — practical step-by-step
1) Gather the balance sheet (most recent consolidated financial statements; for public companies use the latest 10‑K or 10‑Q).
2) Identify total assets and total liabilities (use book values as reported). Alternatively, compute NTA from shareholders’ equity: Shareholders’ equity = Total assets − Total liabilities, then subtract intangible assets.
– Formula A: NTA = Total assets − Intangible assets − Total liabilities
– Formula B: NTA = Shareholders’ equity − Intangible assets
3) Identify intangible assets to remove. Typical line items:
– Goodwill
– Identifiable intangible assets (patents, trademarks, customer relationships, capitalized software)
– Deferred financing costs are usually tangible (financial asset) and not considered intangible; read notes carefully.
4) Calculate NTA per share (if desired): NTA ÷ number of outstanding common shares (use diluted shares only if you want a conservative per-share measure).
5) Adjust for fairness/realism:
– Consider revaluing certain tangible assets to fair-market value (FMV) if balance-sheet values are materially stale.
– Add back or subtract off‑balance-sheet items you deem relevant (leased assets and corresponding lease liabilities, pending litigation reserves, guarantees).
– Consider contingent tax liabilities from intangible write-ups or differences between book and tax bases (deferred tax liabilities).
6) Compare across peers and industry medians rather than across widely different business models. Use NTA per share when comparing stock prices to peer books.
When to adjust book values to fair market values
– If you are using NTA for liquidation or sale planning, using FMV is essential.
– If PP&E has been carried at historical cost for many years and property values have changed materially, restate to FMV for a reliable liquidation estimate.
– For routine credit screening or quick peer comparisons, book values often suffice, but note the limitations.
Use cases: How investors and lenders use NTA
– Lenders consider NTA as a conservative collateral measure or covenant metric.
– Distressed investors use NTA to estimate recovery values in bankruptcy/liquidation scenarios.
– Value investors may look for stocks trading below NTA (price < NTA per share) as potential bargains — but must check intangible-driven earning potential and hidden liabilities.
– Analysts sometimes compute Return on Tangible Assets (ROTA) or use tangible assets in ROA to get a cleaner operating performance measure that excludes intangibles.
Real-world application: computing NTA from 10‑K filings
– Locate on the 10‑K: consolidated balance sheet and notes for “Goodwill and other intangible assets,” “Total assets,” “Total liabilities,” and “Shares outstanding.” The U.S. SEC EDGAR database contains 10‑Ks for public companies.
– Example approach (Amazon, Meta — illustrative):
1. From the 10‑K get Total assets.
2. From the notes get Goodwill and intangible assets (often separately disclosed).
3. Get Total liabilities.
4. Compute NTA as above and then divide by shares outstanding for per share value.
Note: Investopedia illustrated this approach using Amazon and Meta 10‑Ks to show how tangible-heavy vs. intangible-heavy firms compare. See source links below for specific filings.
Practical example (simple numeric)
– Company A balance sheet: Total assets $2,500,000; Goodwill $400,000; Other intangibles $100,000; Total liabilities $900,000.
– NTA = 2,500,000 − (400,000 + 100,000) − 900,000 = 1,100,000
– If shares outstanding = 550,000, NTA per share = 1,100,000 ÷ 550,000 = $2.00
Interpretation checklist before acting on NTA
– Are the company’s most valuable assets intangible (software, patents, network effects)? If yes, NTA likely understates enterprise value.
– Are there meaningful off-balance-sheet liabilities (leases, lawsuits, guarantees)? Add them in where material.
– Is the balance-sheet dating back several years (inflation and asset write-downs may distort). Consider FMV adjustments.
– For per-share comparisons, use the same share count basis across peers (basic vs. diluted).
– Use NTA as one input among many — combine with earnings, cash flow, growth prospects, and industry context.
Common pitfalls and how to avoid them
– Pitfall: Treating NTA as a precise liquidation value. Reality: liquidation prices can be much lower due to fire-sale discounts and transaction costs. Always apply a margin of conservatism.
– Pitfall: Applying NTA cross‑industry. Solution: Compare within industry or peer set with similar asset-intensity.
– Pitfall: Ignoring deferred tax liabilities that may arise from adjustments to asset bases. Solution: account for deferred taxes where relevant.
– Pitfall: Missing intangible value not recorded on balance sheet (internally generated brand, trained workforce). Solution: supplement with other valuation methods (DCF, multiples).
Quick reference formulas
– NTA = Total assets − Intangible assets − Total liabilities
– NTA = Shareholders’ equity − Intangible assets
– NTA per share = NTA ÷ Outstanding common shares
Further reading and sources
– Investopedia — “Net Tangible Assets,” Zoe Hansen (source article): https://www.investopedia.com/terms/n/nettangibleassets.asp
– U.S. SEC EDGAR — company Form 10‑K filings (search a company’s name, e.g., AMAZON.COM, INC.; FACEBOOK, INC. [Meta Platforms] filings) for the balance sheet and notes: https://www.sec.gov/edgar/search/
Bottom line
Net tangible assets provide a conservative, tangible-focused snapshot of what a company owns after liabilities and intangibles are removed. They’re most useful for asset-backed lending, liquidation analysis, and comparing capital-intensive companies. Because book values and intangible importance vary by industry, always adjust for market realities and use NTA alongside other valuation tools.