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 by using the below formula.
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For eg:
Source: Net Asset Formula (wallstreetmojo.com)
Step by Step Calculation of Net Assets
The calculation of Net Assets is quite simple and is easy to understand. We need to cover below three steps, and then we will have Net Asset value.
- First, we need to calculate the total of assets, which is the right side of the balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company.read more. 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 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 just deduct the total calculated in step 1, which is total assets from total liabilities, which was calculated in step2.
Examples
Example #1
PQR Ltd is in a stage of finalizing its books of accounts, and the MD of the company wants to know what their net asset is. Below is the information extracted from their trial balance; you are required to calculate Net Asset.
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, who is 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 nor zero.
Below 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?
Solution:
Here we are given a few variables from the liabilities side and few variables 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 have been recently suffering from decline 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 net assets of the company first.
You are required to calculate the net assets of the company.
Solution:
Here we are given a few variables from the liabilities side and few variables 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 = 3,52,882.09 – 2,57,454.18
Net Assets will be –
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
| Assets | |
| Liabilities | |
| Net Asset Formula | |
| Net Asset Formula = | Assets – Liabilities |
| 0 – 0 = | 0 |
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 stockholders of the firm or the company or the business owns the assets which shall not have outstanding loans. This would be the same as home with a mortgage loan upon it. 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 a few several ways. They can make new investments in the firm or in the company, or the management or the owners can simply leave excess profits in the bank account of the company rather than calling for distribution or dividend. If owners or shareholders or stockholders withdraw money out of business say in the form of a distribution or dividendDividendDividend is that portion of profit which is distributed to the shareholders of the company as the reward for their investment in the company and its distribution amount is decided by the board of the company and thereafter approved by the shareholders of the company.read more, their nets assets shall decrease. The ratio of liabilities to total assets shall go up as the owners took out the cash, which is part of an asset, from the firm or the business.
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