Net Tangible Assets: What does it mean to me?

Question

I am looking at a company with an extremely impressive income statement and cash flow. However, the balance statement reveals that net tangible assets are negative and not improving. What should I take from net tangible assets as an evaluation?

Answer 1

Net Tangible Assets - the total assets of a company, minus any intangible assets such as goodwill, patents and trademarks, less all liabilities and the par value of preferred stock. Also known as "net asset value" or "book value".  

Did they acquire another company(s) and over pay relative to the assets being acquired? Subsequently this could result in right-downs relating to goodwill.

If a company were "milking" their assets and not replacing them cash flow would be higher than if they were re-investing in plant and equipment. For instance an oil and gas company stops drilling new wells; cash flow is high and assets decline. If they pay this cash flow out as a dividend then the companies overall asset value declines. The same would happen if they were to drill a bunch of dry holes. The failed investments in new wells provides tax relief so cash flow is high but depreciation and borrowing costs are driving down the companies asset value.