Tangible Assets

What Are Tangible Assets?

Tangible assets are physical things of value that an individual or business owns. Their defining feature is that they have a physical form, so they can be seen, touched, and in most cases moved or used. Common examples include land, buildings, factory equipment, vehicles, computers, and inventory held for sale. They are the opposite of intangible assets, which have value but no physical form, such as patents, trademarks, and brand recognition.

On a company's balance sheet, tangible assets appear in several places, most often as inventory and as property, plant, and equipment. Many tangible assets lose value over time through depreciation, with the notable exception of land, which is generally not depreciated.

How Investors Use Tangible Assets

Investors often look at tangible assets to understand how much of a company's value is backed by physical resources. One common measure is tangible book value, which takes a company's shareholder equity and subtracts intangible assets and goodwill. Dividing the result by the number of shares outstanding gives tangible book value per share, which some investors compare with the share price.

Tangible assets also matter to lenders. Physical property and equipment can serve as collateral for a loan, which is one reason asset-heavy businesses such as manufacturers, utilities, and railroads often carry significant debt.

Advantages and Disadvantages

Tangible assets are generally easier to measure and verify than intangible ones, since they can be inspected and often have a market price that can be checked. They can also provide a fallback value if a business struggles.

However, they have limitations. Physical assets wear out, become obsolete, or can be damaged. A machine that was valuable a decade ago may be worth little today. Accounting values also may not reflect what an asset would sell for in the market, and a company's most important sources of value, such as its brand or technology, are often intangible and may not appear in tangible measures at all.

Investors reviewing these figures should read them alongside the rest of a company's financial statements, since the value of tangible assets depends on how well they are used to generate income.