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.
Key Takeaways
- 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 do not.
- Net tangible assets are the theoretical value of a company’s physical assets.
Shareholder Equity
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 asfair 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 are the company’s book value of physical assets. In addition to goodwill, intangible assets may include patents and trademarks.
Key Differences
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 are the theoretical value of a company’s physical assets.
Shareholder Equity vs. Net Tangible Assets Example
For example, as of Jan. 31, 2021, Walmart had total assets of $252.5 billion, total liabilities of $165 billion, goodwill of $29 billion, and no preferred stock.
Therefore, Walmart had total shareholders' equity of $87.5 billion, or assets less liabilities ($252.5 billion - $165 billion). Conversely, it has net tangible assets of $58.5 billion, or total assets less goodwill and liabilities ($252.5 billion - $29 billion - $165 billion). While shareholders' equity includes Walmart’s intangible assets, its net tangible assets exclude those values.
FAQs
Key Takeaways
What is the difference between net assets and shareholders equity? ›
The difference between the two is that net assets include all assets and liabilities but subtracts intangible items like goodwill, deferred tax assets and other non-cash items. Whereas shareholders equity includes the total value of the above-mentioned items as well, including any deferred tax assets.
What is the difference between assets and shareholders equity? ›
Is shareholders' equity an asset? No, shareholders' equity is an obligation to a company's shareholders. Assets are what the business owns. Remember the formula: Assets equal liabilities plus shareholders' equity.
Is tangible net worth the same as equity? ›
"Net Worth" refers to the equity of an entity (total assets minus total liabilities). "Tangible Net Worth" is similar but excludes intangible assets such as goodwill, intellectual property and licence agreements from the total assets of the entity.
What is the difference between net equity and shareholders equity? ›
Equity reflects the level of ownership of a public company or an asset. An individual might own some equity in a house but still hold a mortgage or loan. Shareholders' equity is the net amount of a company's total assets and total liabilities. Shareholders' equity represents a company's net worth.
What is the difference between net tangible assets and shareholders equity? ›
Key Differences
A company's shareholder equity indicates the value that a company is financed through investors purchasing common and preferred shares. Meanwhile, net tangible assets are the theoretical value of a company's physical assets.
Should net assets and total equity be the same? ›
The term 'net assets' refers to the total assets of an entity, minus its all liabilities. In other words, net assets are all things or shares that a company owns, minus what it owes to other organisations or people. The total amount of net assets is exactly the same as the stockholders' equity of a business.
Is shareholders equity equal to total assets? ›
Shareholders' Equity = Total Assets – Total Liabilities
Total assets are the total of current assets, such as marketable securities and prepayments, and long-term assets, such as machinery and fixtures. Total liabilities are obtained by adding current liabilities and long-term liabilities.
What is asset vs equity examples? ›
Here are two examples: An asset that is a liability: Your business has $10, but you borrowed it from George. The $10 is both an asset (cash) and a liability (a loan that you need to pay back). An asset that is equity: You invested $20 in your business buying equipment.
What is included in shareholders equity? ›
Four components that are included in the shareholders' equity calculation are outstanding shares, additional paid-in capital, retained earnings, and treasury stock. If shareholders' equity is positive, a company has enough assets to pay its liabilities; if it's negative, a company's liabilities exceed its assets.
What Is the Difference Between NAV and Shareholder Equity? Equity is calculated by including intangible assets, which can include items like patents, while NAV is calculated using only tangible assets.
Is net worth equal to shareholders equity? ›
The shareholders' equity, or net worth, of a company equals the total assets (what the company owns) minus the total liabilities (what the company owes).
Why are net tangible assets important? ›
Importance of Net Tangible Assets (NTA)
A company with a high NTA is able to obtain acquisition financing more easily since it owns more assets to use as security for loans.
Are net assets equal to shareholders equity? ›
The term net assets refers to the value of a company's assets once the value of its liabilities has been deducted. Net assets are also referred to as book value or shareholders' equity.
What is the difference between total assets and shareholders equity? ›
Equity. Equity, often called “shareholders equity”, “stockholder's equity”, or “net worth”, represents what the owners/shareholders own. Equity is considered a type of liability, as it represents funds owed by the business to the shareholders/owners. On the balance sheet, Equity = Total Assets – Total Liabilities.
Does owners equity equal net assets? ›
The value of owner's equity is derived in part from a company's assets, but owner's equity is not itself an asset. Owner's equity is calculated as the total value of a company's assets minus the company's liabilities. A company with higher assets than liabilities will show a positive owner's equity.
What is the difference between net asset value and equity? ›
Equity is calculated by including intangible assets, which can include items like patents, while NAV is calculated using only tangible assets.
Is owner's equity the same as net assets? ›
Owner's equity (also referred to as net worth, equity, or net assets) is the amount of ownership you have in your business after subtracting your liabilities from your assets. This shows you how much capital your business has available for activities like investing.
What definition best describes shareholder equity or net assets? ›
Shareholder's equity is the value of the company's total assets minus its total liabilities. Shareholder's equity is often referred to as "net worth" because it represents the amount of money that would remain if a company were to be liquidated and all of its assets sold.
Are owners equity and net assets the same thing in accounting terms? ›
Owners' equity (sometimes called net assets or net worth) represents the assets that remain after deducting what you owe. In simplified terms, it is the money you would have left over if you sold your practice and all of its assets and paid off everything you owe.
