To assess the financial position of the company, such a calculation parameter as net assets can be used. This indicator represents the difference between assets and debts. With its help, you can assess the creditworthiness and determine the degree of independence of the company from creditors. What is the structure of this indicator? How to calculate it? And what is the role of such assets in business management? Below we will find out the answers to these questions.
What is Net Assets?
Net assets (NA) is the total value of a company’s assets minus its debt obligations.
The volume of NA is one of the most important indicators for assessing creditworthiness. The size of the NA not only demonstrates the profit of the organization, but also reflects the degree of financial independence from the persons who are the creditors of this company. Initially, this technical indicator was developed by government agencies specifically to evaluate LLCs, but today it is also used to assess the creditworthiness and independence of organizations with a different form of ownership.
Structure
The structure of the CA has the following form:
- non-negotiable part. This category includes fixed assets that are not directly involved in production, but without them the organization’s activities are impossible. Such assets can make a profit, but this happens quite rarely (usually only 1 time per year). Examples are buildings, construction in progress, machinery, long-term investments, intellectual property, rent, and so on.
- reverse part. This category includes funds that are involved in the production of goods or the provision of services. Current assets are the main item of income and expenses. This includes various objects that are involved in the production of goods, receivables, short-term investments, VAT, and so on.
Without fail, the NA must include such funds as long-term and short-term investments, accounts payable and a reserve fund.
Analysts do not recommend including in the NA the cost of repurchasing shares if these shares are then resold, as well as the debts of the founders.
Calculation rules in 2018
The calculation rules in 2018 did not undergo any major changes. To determine the size of the NA, you need to use a special accounting formula, which has the following form: NA \u003d A1 + A2 + KR – O1 – O2 . The formula is deciphered as follows:
- A1 and A2 – non-current and current assets of the organization, which it owns by ownership. If any of the co-owners has a debt on contributions to the authorized capital, then the amount of debt must be deducted from the total amount of NA (if there are no debts, then the debt of the participants is equal to zero);
- CR – capital and reserves. This category includes funds that are in the reserve (for example, retained earnings for the previous month, and so on);
- O1 and O2 – short-term and long-term liabilities (credit loans, IOUs, and so on).
Now let’s look at an example calculation:
Suppose there is an enterprise X, which is engaged in the production and sale of any product. To calculate, we use the standard formula:
A1 – the market value of all workshops with equipment and machines is 2 million. The company is also building a workshop, and at the time of calculation the market value of the unfinished object is 0.5 million. In fact, these funds are non-current assets, that is, A1 = 2,000,000 + 500 000 = 2.5 million
A2 – at the time of reporting, the company has unsold goods in the amount of 400 thousand. Also, one of the co-owners has a debt to the authorized capital in the amount of 100 thousand. Then current assets are calculated as follows: A2 = 400,000 – 100,000 = 0.3 million.
KR – the size of the authorized capital is 0.5 million. The organization also has a reserve – 200 thousand. The KP parameter will then be calculated as follows: KP = 500,000 + 200,000 = 0.7 million.
O1 – the factory has a debt to the budget of 200,000 and credit debts of 100,000. These expenses can be considered as short-term liabilities, O1 = 100,000 + 200,000 = 0.3 million.
O2 – there is a large loan in the bank in the amount of 1 million. Therefore, O2 \u003d 1 million.
Let’s now perform the calculation: NA \u003d A1 + A2 + KR – O1 – O2 \u003d 2.5 + 0.3 + 0.7 – 0.3 – 1 \u003d 2.2 million rubles.
Role in business management
Determining the size of assets allows you to evaluate the effectiveness of business management. To improve the quality of the analysis, it is necessary to calculate the NA in different periods in order to understand the dynamics of the company’s development. An experienced economist using this assessment can analyze the following quantities:
- Evaluation of the company’s success for the reporting period.
- The degree of independence of the firm from creditors.
- The success of economic policy.
- The amount of cash security.
- The share of each co-owner.
All organizations must control their HA. It is necessary to ensure that this value is not less than the authorized capital. If the amount of assets becomes less than the minimum size (this parameter is calculated on the basis of state regulations), then in this case the LLC can be liquidated by the employees of the Federal Tax Service, since there is a high risk that the enterprise will soon go bankrupt, which will cause serious damage to its economic partners.
Conclusion
Net assets are all assets of the enterprise minus debts on credit obligations. This indicator allows you to assess the creditworthiness of the organization, its financial independence from creditors, the success of economic policy, the actual volume of the share of each co-owner, and so on. NA consists of current (buildings and construction in progress, long-term investments, rent, and so on) and non-current assets (objects that are used as raw materials for the production of goods, receivables, VAT, short-term investments, and so on). To calculate the NA, a special complex formula is used. Assets are an important factor in business management.