Net Assets

Net assets (also known as owners equity, shareholders equity, or net worth) is the total assets minus the total liabilities of a company or individual. Thus if total assets is $100,000 and total liabilities is $80,000, net assets is $20,000. Net assets represents the portion of assets financed by owners capital, as opposed to creditors capital. On the balance sheet, net assets comprises both capital stock and additional paid-in capital, which represent monies paid into the company for its shares. Net assets also includes retained earnings, the portion of accumulated net income not paid out as dividends. Companies want to ensure their net assets is sufficient to meet their current obligations, even when business turns sour. On the other hand, net assets can also be too high. When a company avoids debt entirely – i.e., its net assets equals its total assets -- it may be foregoing profitable business opportunities that could be financed through bonds. Finally, note that net assets is used in similar fashion (ie, total assets less liabilities) to describe the net worth of a mutual fund.

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