Tangible net worth ratio, a financial metric used to assess an individual’s or company’s financial health, is calculated by dividing tangible net worth by total assets. Tangible net worth represents the value of assets that can be easily converted to cash, such as cash and cash equivalents, accounts receivable, and inventory.
This ratio is significant as it provides insights into a company’s liquidity and ability to meet short-term obligations. A higher ratio indicates a stronger financial position and a greater capacity to repay debt. Historically, the tangible net worth ratio has been employed by banks and financial institutions to evaluate the creditworthiness of borrowers.