Wall Street Prep

Net Operating Assets

Understand the Net Operating Assets Concept

Learn Online Now

Net Operating Assets

Net Operating Assets Formula

The net operating assets (NOA) of a company equals the value of all assets directly tied to core operations minus all operational liabilities.

Net Operating Assets Formula
  • Net Operating Assets = Operating Assets – Operating Liabilities

As shown from the formula above, a company’s net operating assets represent the difference between its operating assets and operating liabilities.

Operating assets and operating liabilities both support the continuation of revenue production from core operations.

  • Operating Assets: The assets of a company required for its core operations to continue functioning (e.g. inventory and the production of products to sell).
  • Operating Liabilities: The liabilities of a company that are part of the day-to-day operations (e.g. accounts payable and supplier orders).

Operating Assets and Operating Liabilities Examples

If an asset is needed for a company’s operations to continue running, it would most likely be considered an “operating asset”.

And if a certain liability is necessary for a company’s operations to sustain itself, it would be classified as an “operating liability”.

Examples of common operating assets and operating liabilities are as follows.

An example of an asset that does NOT qualify as an operating asset would be marketable securities, which would be categorized as an investing activity.

Despite the short-term investment creating income for the company, it is considered “side income” and a non-core asset unrelated to its primary operations.

Further, an example of a liability that would NOT qualify as an operating liability would be long-term debt, as debt is a financing activity.

The value of a company’s operating assets is equal to the sum of all operating assets less the value of all non-operating assets.

Operating Assets Formula
  • Operating Assets, net = Operating Assets – Non-Operating Assets

Similarly, the value of a company’s operating liabilities is equal to the sum of all operating liabilities less the value of all non-operating liabilities.

Operating Liabilities Formula
  • Operating Liabilities, net = Operating Liabilities – Non-Operating Liabilities

Net Operating Assets Calculator – Excel Template

We’ll now move to a modeling exercise, which you can access by filling out the form below.

Submitting ...

Net Operating Assets Example Calculation

Suppose a company has $10 million in total assets and total shareholders’ equity of $7 million.

  • Total Assets = $10 million
  • Total Equity = $7 million

Of the $10 million in total assets, $4 million is related to financial assets such as marketable securities and short-term investments.

We can subtract the non-operating assets from total assets to calculate $6 million as the company’s total operating assets.

  • Operating Assets, net = $10 million – $4 million = $6 million

If the company has $1 million in outstanding long-term debt on its books, we can subtract this amount from its total liability balance.

Considering the accounting equation (assets = liabilities + equity), the total liabilities must amount to $3 million given the $10 million in assets and the $7 million in equity.

Once the $1 million in debt is subtracted from the $3 million in total liabilities, we are left with $2 million as the operating liabilities.

  • Operating Liabilities, net = $3 million – $1 million = $2 million

Using those two values, we can subtract the operating liabilities from operating assets to arrive at the value for net operating assets, which comes out to be $4 million.

  • Net Operating Assets = $6 million – $2 million = $4 million

Net Operating Assets Calculator

Step-by-Step Online Course

Everything You Need To Master Financial Modeling

Enroll in The Premium Package: Learn Financial Statement Modeling, DCF, M&A, LBO and Comps. The same training program used at top investment banks.

Enroll Today
Comments
guest
0 Comments
Inline Feedbacks
View all comments
Learn Financial Modeling Online

Everything you need to master financial and valuation modeling: 3-Statement Modeling, DCF, Comps, M&A and LBO.

Learn More
X

The Wall Street Prep Quicklesson Series

7 Free Financial Modeling Lessons

Get instant access to video lessons taught by experienced investment bankers. Learn financial statement modeling, DCF, M&A, LBO, Comps and Excel shortcuts.