Net Worth is the difference between what you have and what you
owe. It’s your total worth at a single point in time.
To calculate your net worth, first list your debts, then list your assets. Assets are things you own, like cash or a house or stock of stock. Debts are things you owe, like house payments or credit card bills.
To figure out the value of your assets, add up all your assets and make a
guess at how much each one is worth. Then subtract your debts from your
assets. That is called net worth. However, for more accurate results you need to calculate your tangible net worth.
What is Tangible Net Worth?
A basic net worth calculation can be misleading because it doesn’t include the value of intangibles such as copyrights, patents, and trademarks. These may not be owned by you but registered to you, in which case your net worth should include them.
Tangible net worth is the difference between your tangible assets and your tangible liabilities. Although it’s not as helpful as basic net worth, it can be useful in certain cases. For example, if you are the plaintiff in a court case, you need to know what the value of your assets is and what your liabilities are.
Sometimes Tangible net worth is harder to calculate because of intangibles. You need to know the value of your patents and trademarks.
If you own copyrights, patents, or other intellectual property, the concept of “tangible net worth” is for you. However, if your primary business is manufacturing, your “tangible net worth” may be different from your income.
How to Calculate your Tangible Net Worth ?
To calculate your tangible net worth, add up all the assets you own: cash, investments, buildings, equipment, and so on. Then subtract all the liabilities, including loans, mortgages, and credit cards. Finally subtract your intangible assets, such as patents, copyrights, and trademarks. If you subtract your intangible assets from your assets, then your assets minus your intangible assets are your tangible net worth.
Tangible Net Worth = Total Assets – Total Liabilities – Intangible Assets
So your net worth formula doesn’t tell you if your assets or liabilities are good or bad. It just tells you whether your assets are better or worse than zero. It is your Tangible net worth that gives you a clear picture.
To calculate your tangible net worth get the real data of the following
Total Assets: Cash and cash equivalents Investments Real property Personal property
Total Liabilities: Secured liabilities—auto, mortgage, home equity loans, etc. Unsecured liabilities—credit cards, medical, student, and personal loans, etc. Deferred tax liabilities on retirement accounts, etc.
Value of Intangible Assets: Goodwill Patents Trademarks Intellectual property Other IP
Business Tangible Net Worth
A business’s tangible net worth is made up of assets minus its liabilities.
Assets include cash (cash and investments), inventory or merchandise, buildings, machinery, tools and equipment, accounts receivable, and prepaid expenses. Liabilities include accounts payable, accrued expenses, and debt.
To determine tangible net worth, add up the total value of the assets minus the total of the liabilities. A positive number means the business has more assets than liabilities, and a positive number means the business has more liquidity (cash and liquid investments) than debt.
A negative number means the business has more liabilities than assets, and a negative number means the business has more debt than liquid assets.
Personal Tangible Net Worth
Personal tangible net worth is calculated the same way, except assets and liabilities are replaced with personal assets and liabilities. Additionally, personal tangible net worth includes non-liquid assets such as life savings and real estate.
Tangible Versus Intangible Assets
The difference between net worth and tangible net worth calculations is that the net worth calculations include all assets, and the tangible net worth calculation subtracts the assets that you cannot physically touch. Assets are everything that you own that can be converted into cash. This means assets include cash, investments, real property (land and permanent structures, such as homes, attached to the property), and personal property (everything else that you own such as cars, boats, furniture, and jewelry).
The tangible net worth calculation is a calculation of your net worth, or your assets minus your liabilities. Assets include cash, investments, and real property. Liabilities are everything you owe, such as loans, credit card debt, deferred payments, and child support.
Real property includes the roof over your head and the land beneath it. It does not include things like a car or a boat that sits on the land.
Cash is the money that you keep in your wallet or in your checking account. Investments include stocks, bonds, and mutual funds. Bonds and mutual funds are investments that you buy and own. The return (or return) on the investment is the amount you get back when you sell the investment.
The tangible net worth calculation does not take into account the value of things that cannot be converted to cash. This includes artwork, antiques, cars, boats, jewelry, and other valuable property.
The tangible net worth calculation is an approximation of your net worth. This calculation assumes that all of your assets are liquid, [i.e.], that you can easily and quickly convert the assets into cash. For example, if you own real estate, the tangible net worth calculation assumes that you can sell this property immediately and pay off all of your debts.
Related: How to calculate Net Worth
Conclusion
Tangible assets can be worth a lot. The value of a company is not just the amount of its tangible assets. It is also its intangible assets, plus its accumulated cash flow. If you owned a company that made very little money, but a lot of assets, its tangible net worth might be zero, but its intangible net worth might be substantial.