Tangible Net worth calculation with Formulae and Examples of GAAP
How to Calculate Tangible Net Worth
Tangible net worth is a calculation of the entire value of a company that does not include the sum of intangible assets. Tangible net worth is calculated after assessing the value of the total assets of any specific company. Tangible assets can only include things that may get money in case the company is not able to pay its debts. These assets include homes, cash, cars and any other vehicle of the business or individual concerned. Measurement of tangible net worth is easier than the measurement of net worth. It is only because tangible net worth includes physical things which can be valued easily.
Tangible Net Worth Formula
Tangible net worth is a formula-based calculation which can be applied to both businesses and individuals. When it comes to any individual, the formula of the calculation works somewhat easily. According to rule, tangible net worth does not include insignificant stuffs of an individual or a company when it applies for a loan or a credit.
Tangible net worth formula also dictates that the liabilities or debts that one owes get subtracted.
For example, if you pay off a car, the value of the car would be subtracted from the remaining debt. In this case, the equity in the car will be part of the tangible net worth. Tangible net worth serves as an important covenant, as well. The tangible net worth covenant gives high level of protection to the bank in the case of any default.
What is Tangible Net Worth GAAP
Tangible Net Worth GAAP (generally accepted accounting principles) is an important method that is primarily used to value the liabilities and assets of a business.