Sources of assets formation, as you probably know, can serve as the company's own funds, and borrowed funds. This is normal practice, and usually borrowed funds even prevail. The problem arises when borrowed funds begin to exceed the value of all assets of the enterprise, which can happen if the company operates at a loss. In this case, the risk of the company not returning funds to creditors increases significantly, and the fate of the company can be decided in court. In order to prevent the occurrence of such a situation, it is necessary to regularly carry out the calculation of net assets, controlling their level.
Net assets are assets that are secured by the company's own funds, and their calculation is similar to calculating net profit - you take the initial amount (in our case, the balance sheet currency) and gradually subtract certain indicators until you get the final result.
To begin with, it is necessary to deduct all short-term and long-term liabilities in any form from the balance sheet currency, which displays the total amount of both assets and liabilities. The logic here is simple. Since these funds will have to be returned sooner or later, it means that the company will have to part with some of its assets in order to do this. This means that these assets cannot be considered de facto owned by the enterprise, therefore, when calculating net assets, we subtract them from the total.
However, the calculation does not end there. We also need to adjust the value of our assets to the amount of debt to the enterprise of its shareholders. Despite the fact that according to the accounting rules, such debt is reflected together with other receivables, it is necessary to highlight it for our analysis. Debt of shareholders cannot be considered a net asset, since this asset cannot be used to pay off a company's debt to external economic entities, and it is for this purpose that net assets are calculated. Thus, accounting for settlements with founders is a necessary element of our analysis.
Finally, the last thing to do is to adjust the amount of liabilities by the amount of deferred income. Despite the fact that deferred income is considered from the point of view of analytical accounting as a liability of the company, such creditors are not entitled to claim the property of the company. Moreover, the company in this case repays its debt obligations without the direct use of its assets, through the implementation of economic activities. Thus, adding deferred income, we get the final amount of net assets.
The calculation of net assets will show us a very important result from the point of view of the financial condition of the company. As already mentioned, a negative value of net assets can be considered a disaster, but even if it is at a positive level, this does not mean that the financial enterprise is stable. In fact, the creditors of the enterprise would like to see there as much as possible. Let's not forget that there is always a risk of asset depreciation. In addition, not all of them can be converted into liquid form, such as cash, for settlements.
Thus, an enterprise should always have a reserve - a financial safety cushion that can save it in case of emergencies. The calculation of net assets just allows you to identify such a reserve, in connection with which the information received can be useful not only to external persons, but also to the managers of the enterprise itself.