Net Tangible Assets
Categories: Accounting
If you’re an investor throwing a lot of your weight at one company, you’ll be interested in their net tangible assets, for sure. Net tangible assets are what value would be left of a company for shareholders if they went out of business right now: selling their assets, paying off liabilities, and paying off preferred stock obligations.
Net tangible assets is the total assets of a company, subtracting their assets, liabilities, and any other financial obligations. Since net tangible assets are of extreme interest to shareholders, it’s common for net tangible assets to be divided by number of outstanding shares, which shows how much each shareholder would get, in theory.
For investors deciding whether or not to invest in a company, they can compare the company’s net tangible assets to the company’s share price. Which makes sense, right? Why wouldn’t someone want to buy a share for $100 if, in theory, the company went under today, paid off all its debts, and left you, a single-share shareholder, with $120?
On the flip-side, if net tangible assets are less than the share price, investors might judge the shares as inflated.