Net worth is all about the value of assets after subtracting the possible liabilities. While it seems to be a simple formula, calculating the total possible assets and liabilities is the main concern here. No or less knowledge about financial concepts can add to this difficulty.
Many of us already know that if assets are greater than a liability, then it is a positive net worth while when assets are lesser than a liability, it is negative net worth. Many times some other concepts like patents, intellectual property rights, patents, etc., remain unaccounted in this game of assets versus liabilities. Let us today help you to calculate your exact net worth or the tangible net worth.
What is tangible net worth?
Any person having patents, intellectual property rights, patents, etc., needs to calculate the tangible net worth that stands for the value of tangible assets minus the tangible liabilities. Here, tangible assets mean all the assets that can be physically converted or held in cash only. Hence, the calculation of the tangible assets includes the subtraction of property, investments, cash, etc., and the tangible liabilities include secured debt, unsecured debt, etc.
Tangible net worth for individuals:
Individuals applying for different types of loans have to provide tangible net worth details. It offers the exact details of the financial condition of the person and secures the lender for its stake. It further gives an idea to the lender that how much amount can be repaid if the person is not able to repay the loan to the lender.
Tangible net worth for businesses:
Companies calculate the tangible net worth based on the liquidation value of the company if the company is set to be sold or has to cease its operations. The businesses must showcase their tangible net worth when they are applying for small personal or business loans and the lender needs the real net worth of the business. It helps lenders get details of the accurate view of finances. It offers the opportunity of liquidation of assets to the lender in events when the businesses are not able to repay the loan amounts.
What are tangible assets?
The total tangible assets subtract the assets that can’t be physically touched for cash. Hence, the tangible assets include only such assets that can be converted into cash physically. Hence the tangible assets are jewelry, furniture, boats, cars, personal properties, homes, income attached to property, land or permanent structures, real properties, cash, etc. The investments come under the financial assets but not under the tangible assets. This is because the investments can be converted into cash after a specific amount of time only.
The intangible assets can’t be held in the form of cash. These are valuable assets that can’t be seen or touched my eyes. Many times the loan seekers go for the questioning that the intangible assets also have value but often have to compromise to the bank or lenders as these assets can’t be easily liquidated. Some of the intangible assets include intellectual property, trademarks, patents, copyrights, goodwill, etc.
Calculating the tangible net worth:
The quick formula to calculate the tangible net worth is:
Tangible net worth = Total Assets – Intangible Assets – Liabilities (Secured and Unsecured)
Total assets include cash investments, cash, personal property, real property, cash equivalent investments, etc.
Intangible assets include intellectual property rights, goodwill patents, trademarks, other IP, etc.
Secured liabilities include equity loans, home loans, mortgages, auto liabilities, etc.
Unsecured liabilities include deferred tax liabilities on retirement accounts, personal loans, medical students, credit cards, etc.
Calculating the tangible net worth requires precise calculations of the total assets, intangible assets, secured liabilities, insecure liabilities, etc., based on the accurate financial sheets. It is a step-by-step process that should be backed by bank details or credit card statements.
You can start by adding the cash or cash equivalents. It includes certificates of deposit, money market accounts, treasury bills, physical cash, checking or savings accounts, etc.
It is important to determine the current market value of investments. It includes bonds, mutual funds, retirement plans, annuities, stocks, pensions, life insurance cash value, etc.
The next step is to add the value of tangible assets It includes household furnishings, jewelry, rental properties, cars, boats, motorcycles, collectibles like coins, art, antiques, home technology, primary residences, second homes, etc.
You can start by adding the secured liabilities. It includes home equity loans, mortgages, second mortgages, vacation or second homes, car loans, rental real estate mortgages, etc.
It is important to determine the current value of the unsecured liabilities. It includes medical bills, student loans, debts, outstanding bills, credit card debt, personal loans, etc.
Calculating tangible net worth- Quick Tips:
A quick look at the entire process to calculate tangible net worth includes:
Start by collecting all the financial records. It eliminates the chances of any inaccurate calculations.
It is easy to start the net worth calculation process by keeping all the documents handy that can eliminate any miss in the calculation of assets or liabilities.
It is important to declare all the information correctly without hiding any bad loans or other transactions.
Once you’ve calculated the tangible net worth, it is recommended to keep a quick file of the same to ensure that the next time, all calculations are easy and smooth.
Businesses and individuals can calculate the exact net worth when they’re looking for any loan for professional or personal reasons. The difference between the net worth and the tangible net worth is the subtraction of the total tangible assets that don’t directly add to the physical cash or cash equivalent for the entity. These assets are, however, present but don’t count in the calculations that are the base of the loan. Hence, it is important to go through the process of calculating the tangible net worth to ensure precise financial information. It is like the process of calculating net worth but considering the tangible and intangible assets differently.