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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6 comments:

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

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