Net assets mean the value of total assets minus liabilities on the date of valuation. It represents the net worth of the firm. It is also known as owner’s or shareholder’s equity plus retained earning like reserve and surpluses.  If the net assets of a firm are in negative then it shows that the firm is not financially sound and is loosing its capital.

Example: A firm is having total assets for Rs.50 lacs and total liabilities are for Rs. 60 lacs. In this case the net assets of the firm will be as under:-

Net Assets  =  Total assets Rs. 50 lacs  minus total liabilities Rs.60 lacs  = (Minus Rs. 10 lacs)

It simply shows that company is loosing its capital by Rs.10 lacs.

Uses of Net assets

For the following purposes the valuation of net assets is done:-

  1. The valuation of net assets plays a very important role for a firm to take future action for minimizing this negative gap.
  2. Value of net assets is always required by mutual funds because mutual funds daily publish NAV (Net Asset Value) of their units.  NAV is the market price of the net assets of mutual funds divided by the numbers of units outstanding.