What are Net Operating Assets? Definition & Formula

July 13, 2022

What are Net Operating Assets? Definition & Formula

Net operating assets (NOA) is a term that can be somewhat confusing, especially if you are unfamiliar with accounting vocabulary. It isn't something used every day, which is why it might seem a bit overwhelming when first receiving the instructions to calculate this item on the balance sheet. But there's nothing to worry about. It's actually quite simple.

In this article, we will explain everything you need to know about net operating assets, including what this term means, the difference between operating vs financing assets, how to calculate operating asset using the net operating assets formula, and much more.

Definition

Net operating assets (NOA) is a measure of a company's total liquid and fixed assets. It excludes intangible assets, goodwill, and other non-cash items.

What does net operating assets show?

Net operating assets are the difference between your company's total assets and its total liabilities. In simple terms, NOA shows how much money your company has available to pay off its debts after deducting its current liabilities.

What is included in operating assets?

Operating assets are used to generate revenue for a company. They include cash, inventory, accounts receivables, and accounts payables, among other things. These assets can also be classified as current and non-current.

Current operating assets are those that are expected to be converted into cash within one year, while non-current operating assets are those that have a longer time period before they convert into cash.

How do you calculate net operating assets?

To calculate the net operating assets of a company, you can use the following net operating assets formula:

1. Add up all the current assets

2. Add all the fixed assets

3. Subtract intangible assets and debt from equity

4. Divide that number by total liabilities

As you can see, when you use this simple formula, it's very easy to calculate a company's net operation assets. 

Net Operating Assets Formula

 Net Operating Assets = Operating Assets – Operating Liabilities

What is the difference between operating vs financing assets?

Operating assets are those that are used in the business and provide a return on the investment. These assets can be used, sold, or leased to generate income for the company. Financing assets, on the other hand, are those that are used to generate financing for the business, such as inventory and loans payable.

What are some examples of operating assets?

Operating assets are the sources of revenue that a company uses to operate. They include fixed assets such as buildings, equipment, etc., and current assets such as cash, accounts receivable, and inventory.

Benefits of calculating net operating assets to your business

There are many benefits of calculating net operating assets. Here are three of the main benefits:

1. It helps you understand how much money your business has and how long it could last if it were to shut down. This is important because if a company's cash flow is stable, the company will be able to operate for longer periods of time without having to worry about running out of money.

 

2. Net operating assets give you an idea of what your business is worth. If you're looking at selling it, calculating net operating assets gives you an idea of how much profit there is in the business and what kind of return investors might expect when buying shares in your company.

 

3. Calculating net operating assets helps determine whether or not a company's assets are worth more than its liabilities, which is something investors may look at when deciding whether or not they want to invest in a company or buy shares in one.

Summary

For all intents and purposes, net operating assets are the total amount an organization has left in its financial resources after it has paid off all of its debts. As a result, these assets can be used to help an organization generate revenue or reduce losses, which is why net operating assets are so important when trying to gauge a company's overall financial health.

If you need any help measuring your company’s financial health, or you want a tool that can make monitoring and maintaining your company’s financial accounts easy, then be sure to check out LiveFlow today.

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