Shareholder Equity vs. Net Tangible Assets: An Overview
Shareholder equity and net tangible assets are listed in a company's balance sheet and both express the company's net worth and underlying value. Shareholder equity is calculated including intangible assets, such as goodwill and patents, whereas net tangible assets do not include any intangible assets in its calculation.
- Shareholder equity and net tangible assets are both figures that convey a company’s value.
- Shareholder equity is the value that a company is financing through investors purchasing common and preferred shares.
- The big difference is that shareholder equity includes intangible assets, such as goodwill, while net tangible assets does not.
- Net tangible assets is the theoretical value of a company’s physical assets.
Shareholder equity is the residual claim that shareholders have after all debts are paid. Shareholder equity is calculated as assets less liabilities. It’s also called a company’s book value. That is, theoretically, if a company were to sell all its assets and pay its debts, the shareholder equity should be what’s leftover. This isn’t always the case as the assets carried on the balance sheet are done so at a value that’s generally not the same as fair market value (FMW).
Net Tangible Assets
The net tangible asset formula is assets of a company less liabilities, intangible assets and the par value of preferred shares. This formula looks to determine what physical assets the company has, less any debts. Basically, net tangible assets is the company’s book value of physical assets. In addition to goodwill, intangible assets may include patents and trademarks.
Shareholder equity is calculated by subtracting a company's total liabilities from its total assets. Similarly, it could be calculated by subtracting a company's treasury share from its share capital, retained earnings, and other stockholders' equity. A company's shareholder equity indicates the value that a company is financed through investors purchasing common and preferred shares. Meanwhile, net tangible assets is the theoretical value of a company’s physical assets.
Shareholder Equity vs. Net Tangible Assets Example
For example, as of Oct. 31, 2019, Walmart had total assets of $239.8 billion, total liabilities of $161.5 billion, goodwill of $30.7 billion, and no preferred stock. Apple also has common stock worth $23.313 billion, retained earnings of $87.152 billion and other stockholders' equity of $1.082 billion.
Therefore, Walmart had total shareholders' equity of $78.3 billion, or assets less liabilities ($239.8 billion - $161.5 billion). Conversely, it has net tangible assets of $47.6 billion, or total assets less goodwill and liabilities ($239.8 billion - $30.7 billion - $161.5 billion). While shareholders' equity includes Walmart’s intangible assets, its net tangible assets exclude those values.