Net assets, sometimes referred to as net worth, is the shareholders' equities = assets minus liabilities. Net assets mean the owners' equity or with other words shareholders' equity in a company Balance sheet. The logic behind to use the term "Net assets" instead of "Shareholders' equity" is that, by definition of Financial Accounting Standards Board (FASB) net assets is what residual value left for company owners after deduction all liabilities from all assets.
In normal case Net assets equal or means the same as Shareholders' equity. But, for instance, in the case of insolvency or when Shareholders’ equity or book values do not reflect at all the real values or market value, the creditors valuate (i.e. determine the market value) the company assets and liabilities. Both values can be very different from book values. In this case it is more accurate to speak about Net assets (i.e. assets minus liabilities) than Shareholders’ equity.
If net assets are negative, then an entity is balance sheet insolvent.
The term net assets is commonly used with charities or not for profit entities -- a measurement of their ability to reinvest profits toward their mission.
You should not mix up "Net assets" in comparison with Return On Net Assets (RONA). RONA is Net income / (Fixed assets + Working capital). It is a measure of financial performance of a company.
Famous quotes containing the word net:
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