What are Net Assets?
Net assets are usually defined as the total worth of all existing assets minus any liabilities currently held by the company or individual. Sometimes referred to as net financial assets, the term is not widely used in the business community, although it is utilized extensively among charities and non-profit agencies. In function, net assets more or less equates with owners equity or net worth as used in business settings. There are a number of subcategories of net assets that may be employed, depending on the type of assets that are under consideration. For example, net income assets would refer to income that is retained after all liabilities connected with generating that income are settled. Net capital assets would encompass the value of both income and other assets after deducting expenses or liabilities directly connected with the current value of those capital assets. Net investment assets would refer to the amount of return earned by the investor by the increase in the value of
Assets are anything which the firm owns or has title to (in other words ownership of). The term net then means all assets net of liabilities. Net assets are therefore:- NET ASSETS = Total Assets – Total Liabilities The total assets are made up of fixed assets (plant, machinery and equipment) and current assets which is the total of stock, debtors and cash. The total liabilities are made up in much the same way of long-term liabilities and current liabilities. The net assets figure therefore can be used as a measure of the value of the business. It is the value of everything the business owns after all the debts have been taken account of. For more detail of how this can be used as a measure of the value of a business try going to the theory section of the worksheet below.
