The term net assets refer to the difference between assets and liabilities of the company. This concept is generally used to value the company. It determines the worth of the company, and hence, it is used in various valuation methods. Any amount paid over and above this value is the goodwill of the company. This net assets calculator will help you to calculate the value of the net assets of the company.
Net assets of the company determine the financial health of a company. Positive net assets mean the company is financially sound, while negative net assets indicate the situation of the financial crisis in the company.
The formula for calculating net assets is as follows:
Net Assets = Total Assets – Total Liabilities
The above formula can be simplified as below:
Net Assets = Fixed Assets + Current Assets – (Non-Current Liabilities + Current Liabilities)
How to Calculate using Net Assets Calculator?
You simply have to provide the following data into the net assets calculator.
Fixed assets are those assets held by the company for a longer duration with the purpose to utilize them for generating revenues. We need to enter the net value of such assets, i.e., the value after deducting the depreciation amount.
We can also use our calculator for calculating net book value – Net Book Value Calculator.
Enter the amount of current assets held by the company. These are the assets that a company holds for a period of less than 12 months. It includes inventory, trade receivables, cash & cash equivalents, and other current assets.
Enter the amount of non-current liabilities. These are generally long-term liabilities not maturing within 12 months.
These are the short-term liabilities of the company maturing within a period of 12 months. These include trade payables, outstanding payments, etc.
Let us take an example to grab better command on this concept.
Assume that X Inc. is a manufacturer of toys and its balance sheet comprises of the following:
Sundry Debtors – $2,000
Inventory – $1,750
Cash & Cash Equivalent – $1,500
Fixed Assets – $6,000
Current Liabilities – $2,500
Long-term Loan – $7,500
Net Assets of X Inc.-
Total Current Assets = $2,000 + $1,750 + $1,500 = $5,250
Total Fixed Assets = $6,000
And, Total Current Liabilities = $2,500
Total Long-Term Liabilities = $7,500
Hence, Net Assets = ($5,250+$6,000) – ($2,500 +$7,500)
= $11,250 – $10,000 = $1,250
Here, the net assets of the company are positive, which means that the company has enough assets to pay off its liabilities.
We compare this amount of net assets with the earnings of the company to check the returns generated by the company against the net assets invested by the company. This ratio is known as return on net assets. This ratio can tell us a lot about whether the company is effectively and efficiently utilizing its assets or not. A lower return ratio means the company needs to deep dive and remove the bottleneck and do all that to improve this ratio. Moreover, if this return is lesser than the cost of capital, then the company seems to be facing a severe crisis and will continue to incur losses till this ratio improves.