The Income|Outcome^® Contextuary

“What do you mean by that?”

Any term which uses the phrase ‘net asset’ or ‘net assets’ must be examined closely. This term can describe wildly different situations - here are some possibilities:

1. Net Assets are that portion of Total Assets funded by Corporate HQ i.e. Long-term financing and Capital Stock. This definition is used in the Return on Net Assets calculation. These Net Assets exclude assets generated by the managers activities (i.e. funded by Payables and Other Current Liabilities). Current Debt remains part of Net Assets since it is part of Corporate HQ long-term financing.

Calculation: Total Assets less (Payables plus Other Current Liabilities)

Example: The Round Number Company Total Assets = 300; Payables = 20, Other Current Liabilities = 8 Net Assets = 300 - 20 - 8 = 172

This definition is sometimes used to generate an alternative to the Net Asset Balance Sheet described below.

2. A different definition is used in the Net Asset Balance Sheet.

Calculation: Total Assets less Total Liabilities

Example: The Round Number Company Total Assets = 300; Total Liabilities = 160 Net Assets = 300 - 160 = 140

3. A third definition is Net Asset Value (NAV) which is also called Book Value.

Calculation: Total Assets less Intangible Assets less Total Liabilities

Example: The Round Number Company Total Assets = 300; Intangibles = 8; Goodwill = 20; Liabilities = 160 Net Assets = 300 - 8 - 20 - 160 = 112

Make sure you agree on the meaning!