How to Calculate Your Tangible Net Worth (2024)

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 intellectual property (IP).

What Is Tangible Net Worth?

Your tangible net worth is similar to your net worth in that it calculates your assets and liabilities, but subtracts the value of any intangible assets, including goodwill, copyrights, patents, and other intellectual property.

This figure is important for corporations because it helps determine their actual net worth using physical assets. Businesses calculate their tangible net worth to determine their liquidation value if they were to cease operations or sell.

It 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 their loan.

Tangible vs. Intangible Assets

Your tangible assets are everything you can hold. Investments are regarded as financial assets, not tangible ones, but because they can be converted to cash, they're often included in the tangible category for calculation. Assets may include cash, investments, real property such as land and houses, and personal property such as cars, furniture, and jewelry.

Intangible assets are assets you cannot hold. Goodwill, copyrights, patents, trademarks, and intellectual property are all considered intangible assets. If you want to sell your small business, you may be able to argue that these intangible assets add value to the business. The bank may only consider assets that are tangible because they are more easily liquidated when it comes to determining tangible net worth as part of the loan process.

Tangible Net Worth Formula

Calculating your net worth is a multi-step process and can determine your net worth individually or jointly with a partner or spouse. Individuals should gather all their financial statements in one place with documents like bank and credit card statements.

Maintaining organized records is extremely helpful and helps speed up the process. Create a separate file for your net worth in a filing cabinet or on your computer where you can keep all your statements for comparison. The formula for calculating your tangible net worth is:

$\begin{aligned}&\text{Tangible Net Worth} = \text{TA} - \text{Liabilities} - \text{IA} \\&\textbf{where:} \\&\text{TA} = \text{Total assets} \\&\text{IA} = \text{Intangible assets} \\\end{aligned}$​TangibleNetWorth=TA−Liabilities−IAwhere:TA=TotalassetsIA=Intangibleassets​