Net asset valuation refers to the determination of an entity’s total assets and net debt without consideration of cash flows. Net asset valuation is a complex financial process used to determine the values of any of a company’s assets, both tangible and intangible. It involves assessing the net worth of an entity, and using this figure in order to determine a company’s liabilities, equity, and other relevant financial terms.
Assets are the financial resources that an organization possesses in relation to all of its assets, including debts and other unrecorded financial commitments. Net assets include the difference between all of an organization’s total assets and liabilities. Net assets usually include the net worth of a company’s tangible assets, intangible assets, and goodwill, which are all financial claims that the organization has made against its customers. Net assets also include the fair market value of a company’s property and equipment, even though these financial liabilities may be included in the definition of net assets as well.
A company can use one of two approaches to calculate its total assets. The first method is to apply an asset method to determine its net worth. Under this approach, an entity is valued by subtracting its total liabilities from its total assets. If the difference between the total assets of the entity and its total liabilities is zero, then the asset method indicates that the net worth of the entity is zero.
Assets are usually classified into two groups: fixed assets and variable assets. Fixed assets are those items that cannot be used to produce income and therefore are valued on a depreciating basis. Examples of fixed assets include land, buildings, and machinery and raw materials.
Variable assets can be used to produce income; however, they do not depreciate as easily as fixed assets. Examples of variable assets are inventories, stock, cash, and other financial instruments. A company can also have both fixed and variable assets, and it must account for them separately.
Net worth (also called net worth per share) is a ratio that relates the value of a company’s net assets to its shareholders’ equity. Net worth also includes the amount of a company’s market value; the difference between the actual worth of the company and its net assets is called net worth. Net worth can be a positive value if the company’s value is higher than its shareholders’ equity.
The value of a business is the sum of the net assets it holds and its liabilities. less the value or equity of each owner. Liabilities refer to the obligations of a business that is owed to another party and are included in the business’ net assets.
Financial statements are an accounting summary of an organization’s financial position, including the company’s balance sheet and its operating results. For example, a balance sheet includes the income statement, balance sheet excluding special items, statement of cash flows, statement of changes in equity, statement of operations, statement of income, statement of cash flows, and other financial information. All of the financial statements are prepared in the same manner to provide a complete description of an entity’s financial condition and performance.
An organization’s debt obligations are assets a business owes to creditors. A company’s debts include loans, mortgages, notes, insurance, and trade lines of credit. If a company is unable to make its payments, it has assets to repay these debts and incurs a loss. A company’s assets can be divided into two categories: current assets and non-current assets.
Current assets refer to tangible assets that a company owns, whereas non-current assets are those assets an organization owes to someone else. The latter category is also referred to as non-financial assets.
Total assets (totals of all current and non-current assets) include the value of property, cash, equipment, inventory, and leasehold improvements and goodwill. When an organization considers the value of its assets, it includes both its actual net assets and its net debt obligations.
Net assets are the total value of all tangible and non-tangible assets of an entity; these two categories also include the value of its liability and equity. Net debt obligations include liabilities (net debt minus net assets). The values of net assets and net debt obligations are different from the values of tangible assets and equity.