NET ASSET BACKING ( NTA):
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FORMULA |
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Ordinary shareholders’ equity / No of ordinary shares |
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MEASURE WHAT |
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Measure the assets backing per share |
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SCORE/VALUE |
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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. |
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SALIENT POINTS TO NOTE |
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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 |