Forum Archive Index - October 2000

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

>
> Could somebody please explain to me in laymen terms
> what NTA really is.
>
NTA stands for net tangible assets. 
Tangible is by definition exactly what it means, something that can 
be touched and felt.  For example: a factory, a building, 
processed goods (stock), machinery used in the business. 

The corollary to tangible assets are intangible assets, examples of 
which are 'brand values' and goodwill (being money paid for an 
asset or series of assets over and above what it is tangibly worth).

Total assets = Tangible Assets + Intangible Assets

Assets are listed on the company balance sheet.

The 'Net' part of 'net tangible assets' is the result of a 
subtraction.

If you look in a company balance sheet for the stated shareholder 
funds and subtract from this the intangible assets, what you have 
left is the 'Net Tangible Assets'.

The NTA is a dollar amount.  If you divide this by the number of 
shares on issue you have the 'net tangible asset backing per share' 
which is also often referred to as the NTA of a share, and is a 
figure you sometimes see quoted in the newspapers
>
> Does NTA effect shareprice?
>
It can do.   Looking for a company with a high NTA but a low market 
value was an old Ron Brierley strategy.   The idea being that if you 
can buy a company cheaply enough, the price you can get for the parts 
is greater than what you paid for the whole, hence you can profit 
from such a deal. 

For this reason it is unusual to see a company trade on the 
market below its NTA for an extended period.  If a company does, it 
may be an indication that if the assets were sold quickly it would be 
difficult to get a good price for them.

But most companies share prices are based on their earnings 
potential, and this is not directly related to the assets held within 
the company
>
> Is a higher or lower NTA good?
>
You shouldn't judge a share on a single indicator.  A higher NTA is 
'cheaper' to buy.   But cheap things can be both good and bad.
>
> Where should it be relative to shareprice? (eg same)
> Are there any good websites to explain things like
> NTA, Tax imp, P/E ratio to a beginner?
>
http://invest-faq.com/

Note this is a US site, and tax issues tend to be country specific.
> 
> MOST IMPORTANTLY and finally, in laymen not buffet
> terms what and where should a beginner look for in
> shares? (eg high NTA or P/E ratio)
> 
Depends on the share and the industry group it is in.  Business 
statistics should be thought of as numeric tools.  Not answers in 
themselves. SNOOPY


 
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