Investment Formula Description
Net assets is the net worth for the company after deducting total liabilities from total assets.
Net assets are anything which the corporation owns or has title to.For stock, it is sometime referred as shareholders' equity, ownership's equity or even net worth of the company. Net assets represents the shareholders' claim to a business assets after all creditors and debts had been cleared. Net assets normally consists of two sources. which are the original share capital invested in the company or the cash paid by the investors when the company issue stock and the retained earnings or retained profit that are accumulated by the company. Those accumulated profit was not paid out to its investors and was held by the company for future business expansion. Investors can find net assets or net worth from balance sheet. Moreover, investors can use net assets and net income ( NI ) to find out return on equity ( ROE ) and return on net assets ( RONA ) for one investment.
Net Assets = Total Assets - Total Liabilities
Investment Formula Example
Corporation A has $100,000 total assets and $ 30,000 total liabilities. The shareholders' equity calculation is as following.
Net Assets = Total Assets - Total Liabilities = 100,000 - 30,000 = $70,000
The net worth or net assets for corporation A is $70,000.
Corporation A has $40,000 share capital when it originally issue share to investors. After few years of operation, corporation A has retained profit up to $ 50,000 and it has buy back $ 20,000 of its company share to keep in treasury shares. The shareholders' equity for corporation A as following.
Net Assets = Share Capital + Retained Profits - Treasury Shares = 40,000 + 50,000 - 20,000 = $70,000
Although using different investment formula to calculate, but the outcome is the same to obtain the net assets for corporation A. Corporation A 's net assets is $70,000.