Your net worth is the dollar amount of all of your assets minus your debts. If your assets exceed your liabilities, you have a positive net worth. Conversely, if your liabilities are greater than your assets, you have a negative net worth.
Tangible net worth represents your actual net worth without any estimations or assumptions, removing the value of intangible assets such as copyrights, patents, or other intellectual property (IP).1
Key Takeaways
- Tangible net worth is the total of tangible assets minus debts.
- Tangible net worth is used to determine how much a company is worth.
- A lender may ask you for your tangible net worth before deciding whether to give you credit.
What Is Tangible Net Worth?
Your tangible net worth is similar to your net worth: to calculate it, you subtract your liabilities from your assets. With tangible net worth, though, you go one step further: you also subtract the value of any intangible assets, including goodwill, copyrights, patents, and other intellectual property (IP).2
Tangible net worth is important for corporations because it helps determine what they are actually worth, using physical assets. Businesses calculate their tangible net worth to determine their liquidation value if they were to cease operations or sell.
Tangible net worth is also important for individuals who apply for personal or small business loans with lenders who require a “real” net worth figure before making a decision. Your tangible net worth provides a more accurate view of your finances and how much the lender could recoup if it had to liquidate your assets if you default on the loan.
NOTE: Tangible net worth helps quantify how you are doing financially. It also helps you evaluate your financial progress over time.
Tangible vs. Intangible Assets
Your tangible assets are everything you can touch.
Though investments are intangible assets, they’re often included in the tangible category because they can be quickly converted to cash. Other assets may include real property such as land and homes and personal property such as cars, furniture, and jewelry.
Intangible assets are assets you cannot touch. Goodwill, copyrights, patents, trademarks, and intellectual property are all considered intangible assets.1 If you want to sell your small business, you may be able to argue that these intangible assets add value to the business. However, when it considers your loan application, a bank may only include assets that are tangible because they are more easily liquidated.
Tangible Net Worth Formula
Calculating your net worth is a multi-step process.
First, gather all of your financial statements in one place with documents like bank and credit card statements.
Then, create a separate file for your net worth. Keep it in a filing cabinet or on your computer where you can keep all of your statements for comparison.
In the file, calculate your tangible net worth. The formula for calculating your tangible net worth is:3
TD Bank. “How to Calculate Net Worth and Why It Matters.”
Tangible Net Worth=TA−Liabilities−IAwhere:TA=Total assetsIA=Intangible assetsTangible Net Worth=TA−Liabilities−IAwhere:TA=Total assetsIA=Intangible assets
| Total Assets | Total Liabilities | Value of Intangible Assets |
|---|---|---|
| Cash and cash equivalents | Secured liabilities, including auto loans, mortgages, and home equity loans | Goodwill |
| Investments | Unsecured liabilities, including credit cards, medical debt, student debt, and personal loans | Patents |
| Real property | Deferred tax liabilities on retirement accounts, etc. | Trademarks |
| Personal property | Intellectual property and other IP |
Calculating Assets
To calculate your tangible net worth, you will need to determine the value of your assets. Start with your most liquid assets—that is, the amount you have in cash and cash equivalents, including:
- Certificates of deposit (CDs)
- Checking and savings accounts
- Money market accounts
- Physical cash
- Treasury bills
Next, determine and include the current market value of investments such as:
- Annuities
- Bonds
- Life insurance cash value
- Mutual funds
- Pensions
- Retirement plans, such as an individual retirement account (IRA), 401(k), or 403(b)
- Stocks
- Other investments
Next, obtain the values for real and personal property. Remember, real property includes land and anything that’s permanently attached to it, such as a house. Personal property is almost everything else, including:
- Collectibles like antiques, art, and coins
- Household furnishings
- Electronics
- Jewelry
- Vehicles
Calculating Liabilities
Next, calculate your liabilities. Your liabilities represent all of your outstanding debts. Start with the amount you owe in secured debts, including:
- Vehicle loan(s)
- Home equity loan
- Margin loans
- Mortgage
- Rental real estate mortgage
- Second mortgage
- Vacation or second home mortgage
Then move on to include the amount you owe in unsecured debts, including:
- Credit card debt
- Medical bills
- Personal loans
- Student loans
- Other debt and outstanding bills
TIPS; Always err on the side of caution and assign your assets the most conservative values.
Putting It All Together
Once you determine the value of your assets and the value of your liabilities, you can use this formula to determine your tangible net worth:
Tangible Net Worth = Total Assets – Total Liabilities – Intangible Assets.
What Is the Difference Between Tangible Net Worth and Net Worth?
The difference between tangible net worth and net worth is that tangible net worth includes only assets that you can physically touch and convert into cash while net worth also adds in assets that cannot be physically held, such as copyrights or patents.
Why Is a Net Worth Calculation Important?
Net worth can be an indicator of an individual’s, family’s, or company’s financial health. It shows what is left over after all liabilities are paid.4
What Is Considered Intellectual Property?
Many assets, including trademarks, patents, and copyrights are considered intellectual property (IP). IP is owned and legally protected from outside use or implementation without consent.
The Bottom Line
Your tangible net worth is equal to the value of all of your assets, minus any liabilities and intangible assets. Intangible assets include copyrights, goodwill, intellectual property, patents, and trademarks.
While a standard net worth calculation of assets minus liabilities suffices for most individuals, those who hold intangible assets may be required to calculate their tangible net worth to satisfy a lender’s requirements for a personal or small business loan.