Delving into investment lingo: What is tangible net asset value?

Julie Brownlee, Fsp Invest, 09 Nov. 2015

Tags: tangible net asset value, what is tangible net asset value, tangible book value, valuing a company, investing in shares,

If you’re new to investing and even if you’ve get a fair bit of experience under your belt, you’ll come across a lot of words and terms that you don’t understand.

One of these terms may be tangible net asset value.

So what does tangible net asset value mean? And what does it mean for you as an investor?

Read on to find out…

The ins and outs of tangible net asset value

Tangible net asset value is a measure of the net worth of a company. Tangible net asset value is also known as tangible book value.

Unlike net asset value, tangible net asset value ignores assets that are difficult to value, in other words intangible assets.

Intangible assets include things like brand names and goodwill.

Tangible net asset value also excludes any liabilities a company may have.

To calculate tangible net asset value, you can use the following formula:

Tangible net asset value = Total assets – intangible assets – liabilities

How to use tangible net asset value

For instance, Company ABC has total assets of R100 million, intangible assets of R50 million and liabilities of R20 million.

This means Company ABC has a tangible net asset value of R30 million (R100 million – R50 million – R20 million).

The higher a company’s tangible net asset value, the better.

You can calculate tangible net asset value on a per share basis. This may highlight a cheap share if its tangible net asset value is less than one. This suggests you could buy the whole company and sell off all its assets for less than you paid for it.

So there you have it. What tangible net asset value is.

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