Formula to Calculate Net Assets

Net Assets can be defined as the total assetsTotal AssetsTotal Assets is the sum of a company’s current and noncurrent assets. Total assets also equals to the sum of total liabilities and total shareholder funds. Total Assets = Liabilities + Shareholder Equityread more of an organization or the firm, minus its total liabilities. The number of net assets can be tallied out with the shareholder’s equity of a business Equity Of A BusinessShareholder’s equity is the residual interest of the shareholders in the company and is calculated as the difference between Assets and Liabilities. The Shareholders’ Equity Statement on the balance sheet details the change in the value of shareholder’s equity from the beginning to the end of an accounting period.read more. One of the easiest ways to calculate net assets is using the formula below.

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Step by Step Calculation of Net Assets

Examples

Example #1

PQR Ltd is finalizing its books of accounts, and the MD of the company wants to know its net assets. Below is the information extracted from their trial balance; you are required to calculate Net Asset.

  • First, we need to calculate the total of assets, on the right side of the balance sheet. One can also take a total of assets, or if only trial balance is available, then we need to add assets one by one and then have a grand total of assets. After step 1, we can, in a similar fashion, calculate the total of liabilities that the firm is required to pay or is obliged to pay somewhere in the future. Like step 1, one can add line by line liabilities and get a total of liabilities. Total liabilities can include total borrowings, provisions, current, and other non-current liabilitiesThe most common examples of Non-Current Liabilities are debentures, bond payables, deferred tax liabilities etc. Non-Current Liabilities are the payables or obligations of an entity which might not be settled within twelve months of accounting such transactions. read moreThe most common examples of Non-Current Liabilities are debentures, bond payables, deferred tax liabilities etc. Non-Current Liabilities are the payables or obligations of an entity which might not be settled within twelve months of accounting such transactions. read more. In the last step, we need to deduct the total calculated in step 1, total assets from total liabilities, which was calculated in step2.

Solution:

So, the calculation of net asset can be done as follows.

Well, this is a straight forward example of calculating net assets.

Net Assets = $10,500,000 – $5,500,000

Net Asset will be –

Net Assets = $5,000,000

Hence, the Net assetsNet AssetsNet Fixed Assets is a financial metric used to calculate the overall value of a firm’s fixed assets. You can calculate it by deducting the total depreciation or liabilities from the total amount paid for all the fixed assets. read more of PQR ltd are $5,000,000.

Example #2

HDFC bank one of the leading banks in the industry and one of the best banks operating in India. Sam, a lead analyst at CRISILAt CRISILCRISIL is Credit Rating Information Services of India Limited, the global analytics business that services the financial markets and helps them function most transparently and efficiently. It believes in agile and innovation principles and provides data research and credit ratings.read more, is looking for a new opportunity, and one of the criteria for stock screeners is that the company’s net asset should not be negative or zero.

Below is an extract from BS (reported in cr.) for the period ended 2018.

You are required to assess whether an above stock will make up in Sam’s screener list?

Here we are given a few variables from the liabilities side and a few from the asset side. First, we need to calculate total assets and then total liabilities.

Step 1: Calculation of Total liabilities

Step 2: Calculation of Total assets

Step 3: We can use the above equation to calculate net assets:

Net Assets = 11,03,232.77 – 9,93,633.64

Net Assets will be –

Net Assets = 1,09,599.13

Therefore, the net assets of the HDFC bank for March 2018 were 1,09,599.13, which would compromise equity and reserves.

Example #3

Kedia broker and the company are following TATA motors, one of the listed companies of NSE. TATA motors has recently suffered from declining sales of its most sold product Jaguar Land Rover, and hence its shares have been declining since then. Aman, who is working at Kedia LTD., wants to know the company’s net assets first.

You are required to calculate the net assets of the company.

Net Assets = 3,52,882.09 – 2,57,454.18

Net Assets = 95427.91

Therefore, the net assets of the TATA motors for March 2018 were 95,427.91, which would compromise equity and reserves.

Net Asset Calculator

You can use the following Net Asset Calculator

Relevance and Uses

Assets net of the total liabilities will net to the owner’s equity. Essentially, the shareholdersThe ShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company’s total shares.read more or the firm’s stockholders or the company or the business owns the assets that shall not have outstanding loans. This would be the same as a home with a mortgage loan. The equity or the net assets in the home is the value of the home and subtracting the outstanding mortgage loan. Net assets are a similar concept.

If desired, owners can increase their net assets in several ways. They can make new investments in the firm or the company, or the management or the owners can leave excess profits in the company’s bank account rather than calling for distribution or dividend. If owners, shareholders, or stockholders withdraw money out of business, say in a distribution or dividendDividendDividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the company’s equity.read more, their net assets shall decrease. The ratio of liabilities to total assets shall go up as the owners take out the cash, which is part of an asset, from the firm or the business.

This has been a guide to Net Asset Formula. Here we discuss how to calculate net assets using its formula along with practical examples and downloadable excel templates. You can learn more about excel modeling from the following articles –

  • Return on Net AssetsReturn on Operating AssetsReturn On Operating AssetsReturn on operating assets is the rate of return that a company gains by having it’s operating assets into efficient use. Operating assets are the assets in the balance sheets of the company that are used for daily operations, unlike financial assets which are used as an investment or as a balance sheet statement.read moreTypes of Financial AssetsTypes Of Financial AssetsFinancial assets are investment assets that derive their value from a contractual claim of what they represent. Cash and cash equivalents, accounts receivable, fixed deposits, equity shares, debentures/bonds, preference shares, mutual funds, interests in subsidiaries, associates, and joint ventures, insurance contracts, rights and obligations under leases, Share-Based Payments, Derivatives, and Employee Benefit Plans are all examples of financial assets.read moreNet Cash FlowNet Cash FlowNet cash flow refers to the difference in cash inflows and outflows, generated or lost over the period, from all business activities combined. In simple terms, it is the net impact of the organization’s cash inflow and cash outflow for a particular period, say monthly, quarterly, annually, as may be required.read more