Net Assets is used to show how much a business is worth at its most basic form and it’s calculated as:
ASSETS (current + non-current) < depreciation comes in here
LIABILITIES (current + non-current)
equals NET ASSETS
Another way to think about it is as a basic calculation to determine your net worth.
ASSETS - WHAT I OWN
- Say the only things I own are this computer and a necklace, and combined, I bought them for say $5000 three years ago. I don’t own any cash.
- If I were to sell them today, I wouldn’t be able to recoup the full price. That’s where depreciation comes in. I’ll depreciate these two assets at different rates, but for the sake of this example, the depreciation over 3 years is $2000.
- This means the balance of my computer and necklace is $3000. These are my total assets.
LIABILITIES - WHAT I OWE
- I still owe the bank $1000 from financing the purchase of my computer and don’t own anything else. Therefore, my total liabilities is $1000.
- While this is a very basic calculation, my net assets is $2000 calculated as $3000 in assets less $1000. This is at is basic form of what I would be worth… which is not much