Net asset

Net assets are made up of the difference between assets and debts that a company has .

That is, to calculate the net asset, what we will do will be the following: the debts generated by those assets are deducted from the total assets held by a company.

Through net assets we can know what the value of debt-free assets is. The net asset is, accountingly, the same as the net worth . In short, the net asset reflects the value of the company.

Net Asset Composition

As we have commented previously, net assets are obtained through a difference between assets and debts:

  • Assets represent resources with economic value that someone has with the intention of generating a future benefit. For a company and in accounting terms, the assets represent the assets and rights acquired, through which future benefits are expected. Examples of assets are machinery, a vehicle, a computer, a stock or cash.
  • A debt is an obligation that a natural or legal person has to fulfill their payment commitments, the result of the exercise of their economic activity. From an accounting point of view, debts are called liabilities . Liabilities represent the debts and obligations with which a company finances its activity and serves to pay its assets. Examples of liabilities are debts with financial entities, suppliers or with the Public Administration.

Example of net asset calculation

To understand more clearly the net asset, we will present a numerical example.

“A company has assets valued at 100 and debts valued at 40. What is the value of its net asset?”

Net assets are calculated by subtracting net assets and debts. So:

Net assets = Assets – Debts = 100 – 40 = 60

Thus, according to the previous calculation, we will say that the net asset is valued at 60. The conclusion we obtain is that the company is valued at 60 economic units.

Difference between gross and net assets

The difference between gross and net is that a net amount is the final amount that is left after making a change to the gross amount.

Difference between gross and net

For our purpose in this entry, the following formula could be used:

Net assets = Gross assets – Debts

In this case, the discount refers to debts. Therefore, the gross asset would be the total valuation of the assets and the net asset would be the valuation of the assets discounting debts. In the example of the previous section, as we already calculated, the net asset would be 60, while the gross asset would be equivalent to the total of the non-discounted assets, so it would be valued at 100.

 

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