Free Debt to Tangible Net Worth Calculator
Debt to tangible net worth compares what a business owes with what the owners have in it, leaving out intangible assets like goodwill. Lenders and suppliers use it to see how much of the business is funded by creditors. Enter the numbers from your balance sheet below.
It runs in your browser. Nothing you type is saved or sent anywhere. The numbers filled in below are a made-up example; change them to yours.
How do you calculate debt to tangible net worth?
Debt to tangible net worth = total liabilities ÷ (owner's equity − intangible assets). Take total liabilities from the balance sheet, meaning everything the business owes, short and long term. Take owner's equity, or net worth, then subtract intangible assets such as goodwill, patents and trademarks. That leaves tangible net worth. Divide liabilities by it. A ratio of 1.0 means creditors and owners have put in about the same amount of tangible value.
How the math works
- Tangible net worth = owner's equity − intangible assets.
- Ratio = total liabilities ÷ tangible net worth.
- If tangible net worth is zero or negative, the ratio isn't meaningful, and that itself is a warning sign.
Example (made up): a business with $90,000 in liabilities, $75,000 in owner's equity and $15,000 of goodwill from buying a smaller competitor has tangible net worth of $60,000. The ratio is $90,000 ÷ $60,000 = 1.50, so the business owes $1.50 for every $1 of tangible owner equity.
Why leave out intangible assets?
Goodwill, brand value and patents can be real, but they are hard to sell if the business gets into trouble. A lender thinking about repayment cares most about assets that could be turned into cash, like equipment, inventory, receivables and property. Taking intangibles out gives a stricter, more conservative view of how much cushion the owners provide. That's why this ratio shows up in loan reviews, credit reports and loan covenants, the terms that may require a business to stay under a set ratio.
What is a good ratio?
There isn't one number that fits every business. Industries that carry a lot of equipment or inventory often run higher ratios than service businesses. As a rough reading, under 1 means the owners fund more than the creditors, and a ratio climbing past 3 or 4 usually gets a closer look. The trend matters as much as the level. A ratio that rises every quarter tells a lender more than one snapshot. If you have a loan, your loan agreement may set a specific maximum, and that number is the one that counts.
Where to find the numbers
All three inputs come from the balance sheet. If you only keep a profit and loss report, you'll need to put one together. List what the business owns (cash, receivables, inventory, equipment, intangibles) and what it owes (credit cards, loans, payables, taxes due). Owner's equity is total assets minus total liabilities. Use the same date for everything, such as the last day of a month or quarter. For a sole proprietor, keep business and personal accounts separate. Mixing them makes every ratio less reliable. For your personal side, the net worth calculator does the same assets-minus-debts math.
How to lower the ratio
There are only two levers: owe less or build tangible equity. Paying down debt, leaving profits in the business instead of drawing them out, or putting in more owner money all bring it down. Buying equipment with a loan pushes it up at first. This is general information, not accounting or lending advice. A bookkeeper or CPA can prepare a proper balance sheet if a lender asks for one.
Keep the books that feed the ratio
The Small Business Bookkeeping Spreadsheet ($12) is for freelancers, side hustles and small service businesses. Log each sale or expense once and your profit and loss, dashboard and deductible-expense summary fill in. Room for 1,500 entries, Excel and Google Sheets. It tracks income and expenses, not a full balance sheet, so you'd still list assets and debts separately. Record-keeping only, not tax advice.
Get the spreadsheet on Gumroad – $12
We make this template, so take that into account. The calculator above is free to use either way.
Frequently asked questions
What is tangible net worth?
Owner’s equity minus intangible assets such as goodwill, patents and trademarks. It is the part of the owners’ stake backed by assets that could be sold.
What does a debt to tangible net worth ratio of 2 mean?
The business owes $2 for every $1 of tangible owner equity, so creditors fund about two-thirds of the tangible value. Whether that is high depends on the industry and any loan terms.
Is this the same as the debt-to-equity ratio?
Close, but stricter. Debt-to-equity uses all of owner’s equity. Debt to tangible net worth subtracts intangible assets first, so the ratio comes out the same or higher.
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