Friday, September 23, 2016

Total Outside Liabilities to Tangible Net Worth (TOL/ TNW) Formula

Picture depicts the Total outside liabilities by tangible net worth (TOL/ TNW) concept

TOL / TNW Formula:

Picture shows the formula for calculating theTotal Outside Liabilities to Tangible Net Worth (TOL/ TNW)
TOL/ TNW Ratio Formula

Meaning:

This ratio measures the total leverage employed by the business; meaning that the firm has used its net worth as a lever to raise outside funds.

Too much of leverage is not good as it may pose a problem for the organisation to repay the obligations during periods of stress.

Example:

Picture shows data in table for calculatingTotal Outside Liabilities to Tangible Net Worth (TOL/ TNW) as an example
TOL/ TNW Example of NMDC Ltd.

Recommended Number:

TOL/ TNW shall be less than 3 - meaning that a business can have total outside liabilities of a maximum of three times its tangible net worth. Lower number means more safety and a higher number means weakness.



Infographic:


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2 comments:

  1. Please let me know the impact or applicability of the ratio when the TNW become negative

    ReplyDelete
  2. The firm has no net worth leads to no physical assets and the co will be closed soon having no wealth. Leverage ration is nil

    ReplyDelete