Net assets

The net asset is the amount by which total assets exceed total liabilities.

It is determined by adding what you own (assets) and subtracting what you owe (liabilities). It’s also known as net worth (NW).

Net assets as a sole trader are equal to your equity as the firm owner. Net assets for non-profit organisations are divided into two categories: with and without donor restrictions.

How to calculate net assets?

The net assets formula is commonly expressed as follows:

Net assets = Total assets – Total liabilities

You can potentially break down the calculation further to reflect other asset and liability types, such as:

Net Assets = (Total current assets + Total fixed assets) – (Total current liabilities + Long term liabilities)

Let’s split it down into simpler steps:

● Calculate your gross assets first, which is everything on the balance sheet’s right side. Make time to review each one carefully, as unreported or misreported assets can result in an unfavorable net asset value for your organisation.
● Take a look at your total liabilities next. Make sure you don’t just include your current liabilities. You must include all provisions, borrowing, and current and non-current liabilities in your total liabilities.
● Subtract your assets from your liabilities to determine your net asset worth once you’re sure you’ve accounted for all assets and liabilities.

Why is it important to know the value of your net assets?

Net current assets are significant because they represent the difference between an entity’s assets and liabilities. Companies having an excellent net asset value are likely to be financially sound. If a company’s net assets are negative, it indicates that the business may be experiencing financial difficulties.