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Net Operating Assets

Understand the Net Operating Assets Concept

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Net Operating Assets

In This Article
  • What is the definition of net operating assets?
  • Which formula calculates the net operating assets?
  • How are operating assets and liabilities different from non-operating ones?
  • What are common examples of operating assets and operating liabilities?

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.

Operating Assets Operating Liabilities
  • Property, Plant & Equipment (PP&E)
  • Accounts Payable
  • Inventory
  • Accrued Expenses
  • Accounts Receivable (A/R)
  • Deferred Revenue

An example of an asset that does NOT qualify as 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 the business’ 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

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

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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


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