What are Net Operating Assets?
Net Operating Assets is the difference between a company’s operating assets necessary to its core operations and its operating liabilities.
How to Calculate Net Operating Assets?
The net operating assets (NOA) of a company equals the value of all assets directly tied to core operations minus all operational liabilities.
- Operating Asset → If an asset is needed for a company’s operations to continue running, it would most likely be considered an “operating asset”.
- Operating Liability → If a certain liability is necessary for a company’s operations to sustain itself, it would be classified as an “operating liability”.
Common examples of operating assets and operating liabilities are as follows.
| Operating Assets | Operating Liabilities |
|---|---|
Net Operating Assets Formula
The formula to calculate net operating assets (NOA) subtracts operating liabilities from operating assets.
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).
What is the Difference Between Operating vs. Non-Operating Items
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 core, recurring 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.
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.
Net Operating Assets Calculator
We’ll now move to a modeling exercise, which you can access by filling out the form below.
Net Operating Assets Calculation Example
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
