Market-Based Financial Ratio:Net Asset Backing

June 9th, 2006 Comments off
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NET ASSET BACKING ( NTA):

FORMULA

Ordinary shareholders’ equity / No of ordinary shares

MEASURE WHAT

Measure the assets backing per share

SCORE/VALUE

Higher the better. Say if a company’s share has a net tangible asset per share of $1.00, the number of equity share is 2million, it means that if we were to liquidate the company after paying off all the liabilities inclusive of debts, there still remains 2 million x $1 = $2million left for the ordinary shareholders.

SALIENT POINTS TO NOTE

1.  Enables a comparison between market value of equity ( share price ) and the book value

2.   NTA excludes all intangibles like pre-incorporation, preliminary expenses, goodwill, patents and trademarks

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Financial Accounting

 
 

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