What are Net Assets?

Net assets represent the residual interest in an entity after subtracting total liabilities from total assets. In a for-profit business, this residual amount is labeled stockholders’ equity and reflects the owners’ claim on the company’s resources. It includes contributed capital, retained earnings, and other equity components. In a nonprofit organization, net assets are not described as equity because there are no ownership interests. Instead, they are classified as net assets with or without donor restrictions, depending on the presence of externally imposed limitations.

How to Calculate Net Assets

To calculate net assets for a business, start by determining the company’s total assets, which include current assets (like cash and accounts receivable) and non-current assets (like property and equipment). Next, calculate total liabilities, including both current obligations (such as accounts payable and short-term loans) and long-term liabilities (like bonds payable). Subtract the total liabilities from the total assets using the following formula:

Net assets = Total assets – Total liabilities

The resulting figure represents the owner's equity or net worth of the business.

Presentation of Net Assets

Net assets are clearly delineated in the statement of financial position of a nonprofit entity. This line item is highlighted in the following exhibit.