net asset value

Examples of net asset value in the following topics:

• Return on Assets

  • The Return on Total Assets ratio measures how effectively a company uses its assets to generate its net income.
  • $\frac { Net\quad Income }{ Average\quad Value\quad of\quad Total\quad Assets\quad for\quad Accounting\quad Period } =\quad Return\quad on\quad Assets$
  • Return on total assets equals the total net income the business earns in a given accounting period divided by the average value of the business's total assets for the same period.
  • You calculate the average value of the total assets by adding the value of the business's total assets at the beginning of the period and the value of the business's total assets at the end of the period.
  • Return on Total Fixed Assets equals the business's net income divided by the average value of the business's total fixed assets for the accounting period.

• Total Assets Turnover Ratio

  • Total assets turnover = Net sales revenue / Average total assets
  • "Sales" is the value of "Net Sales" or "Sales" from the company's income statement".
  • In financial ratios that use income statement sales values, "sales" refers to net sales, not gross sales.
  • Anything tangible or intangible that is capable of being owned or controlled to produce value, and that is held to have positive economic value, is considered an asset.
  • The balance sheet of a firm records the monetary value of the assets owned by the firm.

• Cost of Equipment

  • Fixed assets, also known as non-current or tangible assets, include property, plant, and equipment.
  • Depreciation is a periodic reduction in an asset's value.
  • Since accounting standards state that an asset should be carried at the net book value, equipment is listed on the balance sheet at its historical cost amount.
  • The cost is then reduced by accumulated depreciation to arrive at a net carrying value or net book value.
  • When an equipment is sold, the sale of the asset can trigger a gain or a loss, depending on the difference between the equipment's net book value and its sale price.

• Valuation of Intangible Assets

  • Since few sales of intangible assets are observable, benchmarking the value of intangible assets can be difficult.
  • An acquisition identifies the value one party was willing to pay for an asset while at the same time identifying the value another party was willing to accept to relinquish that asset.
  • Goodwill is an excellent example of how intangible assets are valued.
  • Let's say Company A has net assets equal to 150,000 and is acquired by Company B for 200,000.
  • Company B believes that Company A has value in excess of their net identifiable assets, and was willing to pay an additional 50,000 to acquire it.

• Characteristics of Intangible Assets

  • Goodwill is only recognized through an acquisition of a company or business combination and is calculated as the difference between the amount of money paid to acquire a company and the fair or book value of the acquired company's net assets.
  • Company $X$ is a car dealership with assets consisting of 10 cars valued at $100,000, an office valued at $150,000, and long-term debt valued at $25,000.
  • Company $X$'s net assets total $$100,000 + $150,000 - $25,000 = $225,000$.
  • The extra $$300,000 - $225,000 = $75,000$ that Company $Y$ paid above Company $X$'s net assets are recognized by Company $Y$ as Goodwill on their balance sheet.
  • Impairment losses are determined by subtracting the asset's market value from the asset's book/carrying value.

• Depreciation

  • Depreciation refers to two very different but related concepts: the decrease in value of assets (fair value depreciation), and the allocation of the cost of assets to periods in which the assets are used (depreciation with the matching principle).
  • The allocation of the cost of an asset to periods in which it is used up affects net income.
  • the expected salvage value, also known as residual value of the asset
  • The cost of an asset so allocated is the difference between the amount paid for the asset and the salvage value.
  • Depreciation is any method of allocating net cost to those periods expected to benefit from use of the asset.

• Fixed Assets Turnover Ratio

  • Fixed-asset turnover is the ratio of sales to value of fixed assets, indicating how well the business uses fixed assets to generate sales.
  • It is, therefore, obligatory that in order to accurately determine the net income or profit for a period depreciation, it is charged on the total value of asset that contributed to the revenue for the period in consideration and charge against the same revenue of the same period.
  • This is essential in the prudent reporting of the net revenue for the entity in the period.
  • Fixed-asset turnover is the ratio of sales (on the profit and loss account) to the value of fixed assets (on the balance sheet).
  • Fixed asset turnover = Net sales / Average net fixed assets

• Return on Total Assets

  • The return on assets ratio (ROA) is found by dividing net income by total assets.
  • When profit margin and asset turnover are multiplied together, the denominator of profit margin and the numerator of asset turnover cancel each other out, returning us to the original ratio of net income to total assets.
  • Second, the total assets are based on the carrying value of the assets, not the market value.
  • If there is a large discrepancy between the carrying and market value of the assets, the ratio could provide misleading numbers.
  • The return on assets ratio is net income divided by total assets.

• Asset Turnover Ratio

  • $Asset\quad Turnover\quad =\frac { Net\quad Sales\quad Revenue }{ Average\quad Total\quad Assets }$
  • The ratio is calculated by dividing the total sales for the accounting period by the average value of the assets the business owned during the year.
  • The average value is calculated by adding the value of assets the business owned at the beginning of the period to the value of the assets owned at the end of the period, and then dividing by two.
  • $Fixed\quad Asset\quad Turnover\quad =\quad \frac { Net\quad Sales }{ Average\quad Net\quad Fixed\quad Assets }$
  • The balance sheet is where you will find information regarding the value of the business's assets, which is necessary to calculate the business's asset turnover ratio.

• Defining Long-Lived Assets

  • Assets are economic resources.
  • It is anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset.
  • Simply stated, assets represent value of ownership that can be converted into cash.
  • Assets represent probable present benefit, involving a capacity, solely, or in combination with other assets, to contribute directly or indirectly to future net cash flows, and, in the case of not-for-profit organizations, to provide services;
  • When assets are expected to contribute to earnings for multiple years, such assets are referred to as long-lived, non-current or long-term assets.