Definition of Tangible Net Worth
It is used to compute the real value of an organization based on the balance sheet. The value of an organization’s intangible assets is not included in tangible net worth.
Explanation of Tangible Net Worth
The formula used to calculate tangible net worth is:
Tangible Net Worth = Total assets – total intangible assets – total liabilities
Intangible assets are patents, copyrights, goodwill, etc.
Also, credit analysis to confirm the outstanding amount that is approved to customers can be calculated through tangible net worth.
In order to accurately calculate tangible net worth, it is important to make sure that the balance sheet illustrates the accurate financial position of an organization. If the balance sheet is subjective then tangible net worth will be wrong and biased. This will result in the wrong estimation of the real value of the organization. Intangible assets are subtracted because they are subjective i.e. they are unquantifiable or cannot be measured.