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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26 comments:

  1. Very informative and useful, you showed very useful info about financial ratios Formulas. Great and Detailed work.

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    Replies
    1. Dear Mr.Zahid Khan

      Thank you very much. Please do not hesitate to ask me any questions you may have regarding investing/ finance. Brgds. Anand

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  2. What is difference between TOL/TNW and debt to equity ratio? DOn't they tell us the same thing?

    ReplyDelete
    Replies
    1. Dear Mr.Arpit Chugh!
      No they are not the same. TOL/ TNW ratio considers all the liabilities, both short-term and long-term, including loans, borrowings, sundry creditors, current liabilities, etc. On the other hand debt-equity ratio considers only loans/ debts, that too usually long-term loans/ debt.

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  7. Sir
    What is benchmark tol/tnw for trader who keeps high sundry creditors which leads to high stocks....so ratio comes to higher side....so is 5 ok for traders.

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  9. Whether we can include the asset created out by bank finance in the net worth of the company and same can be included in TOL.... please clarify...

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  15. Please explain difference between debt equity ratio and tol outside liabilities by tangible net worth

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