net assets

Examples of net assets in the following topics:

• Characteristics of Intangible Assets

  • Intangible assets are identifiable non-monetary assets that cannot be seen, touched, or physically measured.
  • 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 $X$'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.

• Return on Assets

  • The Return on Total Assets ratio measures how effectively a company uses its assets to generate its net income.
  • But while the asset turnover ratio is focused on the business's sales, return on assets is focused on net income.
  • $\frac { Net\quad Income }{ Average\quad Value\quad of\quad Total\quad Assets\quad for\quad Accounting\quad Period } =\quad Return\quad on\quad Assets$
  • $Return\quad on\quad Total\quad Fixed\quad Assets\quad =\quad \frac { Net\quad Income }{ Average\quad of\quad Fixed\quad Assets }$
  • 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.

• 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.
  • Profit margin is net income divided by sales, measuring the percent of each dollar in sales that is profit for the company.
  • Asset turnover is sales divided by total assets.
  • The return on assets ratio is net income divided by total assets.

• 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 bookkeeping, accounting, and finance, Net sales are operating revenues earned by a company for selling its products or rendering its services.
  • Also referred to as revenue, they are reported directly on the income statement as Sales or Net sales.
  • In financial ratios that use income statement sales values, "sales" refers to net sales, not gross sales.

• Valuation of Intangible Assets

  • The valuation of intangible assets are primarily derived from transactions involving intangible assets.
  • Since few sales of intangible assets are observable, benchmarking the value of intangible assets can be difficult.
  • Intangible assets are initially recorded on financial statements at their purchase price, or the cost of acquiring the asset.
  • 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.

• Assets

  • Assets on a balance sheet are classified into current assets and non-current assets.
  • The intangible asset "goodwill" reflects the difference between the firm's net assets and its market value; the amount is first recorded at time of acquisition.
  • The additional value of the firm in excess of its net assets usually reflects the company's reputation, talent pool, and other attributes that separate it from the competition.
  • The investor's proportional share of the associate company's net income increases the investment (and a net loss decreases the investment), and proportional payment of dividends decreases it.
  • In the investor's income statement, the proportional share of the investee's net income or net loss is reported as a single-line item.

• 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 = Net sales / Average net fixed assets
  • Fixed-asset turnover indicates how well the business is using its fixed assets to generate sales.

• Asset Turnover Ratio

  • The asset turnover ratio is a measure of how well a business is using all of its assets to generate sales.
  • $Asset\quad Turnover\quad =\frac { Net\quad Sales\quad Revenue }{ Average\quad Total\quad Assets }$
  • The asset turnover ratio is a measure of how well a business is using all of its assets to generate sales.
  • $Fixed\quad Asset\quad Turnover\quad =\quad \frac { Net\quad Sales }{ Average\quad Net\quad Fixed\quad Assets }$
  • The average fixed asset balance equals the beginning balance of fixed assets for the period plus the ending balance of fixed assets for the period, then dividing by two.

• Cost of Equipment

  • Fixed assets, also known as non-current or tangible assets, include property, plant, and equipment.
  • Fixed assets, according to International Accounting Standard (IAS) 16, are long range assets whose cost can be measured reliably.
  • 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.

• Defining Long-Lived Assets

  • Assets are economic resources.
  • 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;
  • Since non-current, or long-lived, assets are expected to last for longer than one year, accounting treats long-lived assets differently according to their useful life.
  • 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.