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Net tangible assets is an important ”bottom line” number in pre-purchase stock valuation and risk assessment. Once you know how to calculate NTA, you may compare it against current stock prices to get valuable information about a company’s financial status and prospects for future earnings. Look to a company’s balance sheet -- available as part of an annual report -- as the source of information for calculating NTA, also called book value.
Review the “Asset” section of the balance sheet and differentiate tangible assets from intangible assets. Understand that the equation for calculating NTA includes only physical assets such as cash, equipment and real estate, and financial assets such as accounts receivable. This means that intangibles such as patents, trademarks, copyrights, franchises and goodwill are not part of an NTA calculation.
Locate “Total Assets” -- the final entry in the "Assets" section of the balance sheet -- and record this amount.
Locate and record the total amount of “Intangible Assets” from within the assets section of the balance sheet. This subsection most often lists the total first and then provides a breakdown on subsequent lines.
Get a total for gross tangible assets by subtracting the amount of intangible assets from total assets.
Move to the "Liabilities" section of the balance sheet and locate “Total Liabilities” -- the final entry in this section -- and record the amount.
Calculate net tangible assets by subtracting gross tangible assets from total liabilities. Net tangible assets tells you what the company’s net worth would be if it were to fully liquidate.
Access a company’s balance sheet information from the “Investors” section of its corporate website, from financial sites such as Forbes or the Wall Street Journal, or from the U.S. Securities and Exchange Commission website. If you visit the SEC website, choose the most recent quarterly report on Form 10-Q or annual report on Form 10-K for current balance sheet information.
Take this calculation a step further to determine if purchasing stock in this company is a wise investment. Dividing the NTA by the number of shares currently on the open market, for example, tells you whether the company is pricing its stock fairly. In addition, you may easily determine how much you could expect to receive for each share of stock owned if the company were to liquidate.
Items you will need
- Balance sheet
- Spreadsheet program
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