The "Effective Tangible Net Worth" clause refers to a company’s total assets minus intangible assets and liabilities, serving as a financial metric to assess the company's tangible book value. This clause is often used in loan agreements or financial covenants to ensure that the company maintains a minimum level of real asset value, safeguarding creditors' interests.
Effective Tangible Net Worth. Maintain an Effective Tangible Net Worth (defined as total book net worth plus minority interest minus due from officers/stockholders/affiliates minus intangible assets and accumulated amortization plus subordinated debt) of not less than $20,000,000.00, based on consolidated statements of Amphastar Pharmaceuticals, Inc.
Debt minus Subordinated Debt to Effective Tangible Net Worth. Maintain a Debt minus Subordinated Debt to Effective Tangible Net Worth Ratio (defined as (total liabilities minus debt subordinated to Lender) divided by Effective Tangible Net Worth (defined as total book net worth plus minority interest minus due from officers/stockholders/affiliates minus intangible assets and accumulated amortization plus debt subordinated to Lender) not to exceed 1.30 to 1.00, based on consolidated statements of Amphastar Pharmaceuticals, Inc.
As used herein, “Effective Tangible Net Worth” means, for any given date, an amount equal to the total assets of NNN Holdings, on a consolidated basis, minus all intangible items reflected therein (including without limitation all goodwill, intellectual property, and similar items which should properly be treated as intangibles, in accordance with GAAP), plus Subordinated Debt, minus the total liabilities of NNN Holdings, on a consolidated basis, calculated in accordance with GAAP.
Debt to Effective Tangible Net Worth. Maintain a ratio of Debt to Effective Tangible Net Worth of not more than 1.00 to 1, quarterly.
Effective Tangible Net Worth. The words “Effective Tangible Net Worth” shall mean the Borrower’s stated net worth plus Subordinated Liabilities but less all intangible assets of the Borrower (i.e. goodwill, trademarks, patents, copyrights, organization expense, covenants not to compete and other similar intangible items including, but not limited to, investments and/or advances in all amounts due from affiliates, officers or employees).
Debt Less Sub Debt/Effective Tangible Net Worth Ratio. Maintain a maximum ratio of Debt Less Sub Debt / Effective Tangible Net Worth of 1.00 to 1.00, tested quarterly. Effective (defined as Net Worth plus Subordinated Liability(ies). The words "Tangible Net Worth" means Borrower's total assets excluding all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements), less total debt.
In the event that Borrower’s Effective Tangible Net Worth diminishes to: (a) Ten Million and 00/100 Dollars ($10,000,000.00), the Inventory Advances Limit shall decrease to Two Million and 00/100 Dollars ($2,000,000.00); (b) Nine Million and 00/100 Dollars ($9,000,000.00), the Inventory Advances Limit shall decrease to One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00); (c) Eight Million and 00/100 Dollars ($8,000,000.00), the Inventory Advances Limit shall decrease to One Million and 00/100 Dollars ($1,000,000.00); (d) Seven Million and 00/100 Dollars ($7,000,000.00), the Inventory Advances Limit shall decrease to Five Hundred Thousand and 00/100 Dollars ($500,000.00); and (e) Six Million and 00/100 Dollars ($6,000,000.00), the Inventory Advances Limit Sublimit shall reduce to Zero and 00/100 Dollars ($0). Any such decrease in the Inventory Advances Limit shall take effect on the first day of the month following Borrower’s delivery of its quarterly financial statements as required by Section 6.4.
Effective Tangible Equity (aka Effective Tangible Net Worth) means, as determined by Lender as of a fiscal quarter ending period of Borrower, Borrower’s Tangible Equity plus loans to Borrower from officers, stockholders or employees that have been formally subordinated to the Obligations of Borrower to Lender pursuant to a subordination agreement in form and content acceptable to Lender. Tangible Equity means as of a fiscal quarter ending period of Borrower, Borrower’s and its subsidiaries’ total assets (that have been consolidated on Borrower’s financial statements including refundable income taxes and prepaid expenses) excluding all intangible assets (i.e. goodwill, trademarks, organizational expenses) less Borrower’s and its subsidiaries’ total liabilities (that have been consolidated on Borrower’s financial statements).
“Effective Tangible Net Worth” means, for any period, for Borrower on a consolidated basis without duplication, the result of (x) Borrower’s stated net worth, minus (y) the book value of all of Borrower’s assets that would be treated as intangibles under GAAP.
Effective Tangible Net Worth (FGI Industries Ltd.). Maintain an Effective Tangible Net Worth (defined as total book net worth plus minority interest minus due from officers/stockholders/affiliates minus intangible assets and accumulated amortization plus subordinated debt) of not less than $10,000,000.00, tested quarterly based on consolidated financials of FGI Industries Ltd. starting from March 2022.
An effective tangible net worth (defined as total book net worth plus minority interest, less amounts due from officers, shareholders and affiliates, minus intangible assets and accumulated amortization, plus debt subordinated to East West Bank) of not less than $10,000,000 for the quarter ended March 31, 2021 and thereafter;
Maximum Debt / Effective Tangible Net Worth. Borrower shall maintain a maximum ratio of Debt/Worth of 200%. The ratio "Debt/Worth" is defined as Total Liabilities divided by Net Asset Value. This ratio must be maintained at all times and may be evaluated quarterly.
This loan is subject to certain financial covenants such as a Fixed Charge Coverage Ratio and Debt to Effective Tangible Net Worth.
The financial covenants are that the Company must maintain a debt service coverage ratio of 1.35 to 1, an effective tangible net worth of a minimum of $25 million, and MSCO must maintain a net capital ratio that is not less than 10% of aggregate debit items. Certain other non-financial covenants include that the Company must promptly notify East West Bank of the creation or acquisition of any subsidiary that at any time owns assets with a value of $100,000 or greater.
This loan was subject to certain financial covenants such as a Fixed Charge Coverage Ratio and Debt to Effective Tangible Net Worth, as defined in the agreement. The Company decided not to renew the agreement on the Maturity Date, therefore, the balance was $0 as of June 30, 2022.
Effective Tangible Net Worth (ETNW) refers to the value of a company’s physical assets minus liabilities, intangible assets, and preferred stock. It’s a measure used to evaluate a company’s financial stability and strength. ETNW provides insight into the core financial health of a business by focusing on its tangible assets, such as cash, inventory, property, and equipment, rather than intangible assets like goodwill and intellectual property.
You should use Effective Tangible Net Worth when analyzing a company’s fundamental financial health, particularly when assessing its ability to withstand financial difficulties and leverage assets. It is often used by lenders, investors, and financial analysts to:
To calculate and write the Effective Tangible Net Worth, follow these steps:
The formula for ETNW can be expressed as:
[ \text{ETNW} = \text{Total Assets} - \text{Intangible Assets} - \text{Total Liabilities} - \text{Preferred Stock} ]
If a company has $1,000,000 in total assets, $200,000 in intangible assets, $500,000 in liabilities, and $50,000 in preferred stock, its ETNW would be calculated as: [ \text{ETNW} = $1,000,000 - $200,000 - $500,000 - $50,000 = $250,000 ]
Effective Tangible Net Worth often appears in:
These contracts use ETNW provisions to manage financial risk and protect involved parties by ensuring a company maintains a solid asset base throughout the agreement’s duration.
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