About Net Assets

Date: 2010.02.14 | Category: business and finance | Tags: assets,bank,finance,liquidity,money

Capital, adjusted gross income, stocks, bonds, current ratio, operating cash flow, assets, liabilities, equity – it’s easy to get lost in the jungle of terms used moving around when a person tries manage their finances. Previously, it was enough to measure income and expense, is not it? Well, when someone asks “what is my heritage?” She is not referring only to money in your wallet or bank account at the time. In fact, depending on how and how much a person invest, spend or save your money, her estate may vary. The net assets account for only a special category of their heritage. Understanding this fact helps one to form a better idea about the financial situation of living.

Let’s slow down. First, an asset is something that has value and that a person has – everything from money to a CD by the Rolling Stones or the house where she lives. The term net refers not literally to the wine that the person is in the cellar or the gasoline tank of your car. In the financial sense, “net” is a metaphorical term: it is solid and difficult to move, but fluid and moves easily. Specifically, the net assets are those that a person can exchange for other assets easily and efficiently. Money is a classic example. To be classified as a liquid, it must be possible to sell assets quickly and without loss of value. For example, a person could sell his house  on eBay tomorrow, but a quick transaction like that probably would for sale by price well below the real. Houses and other assets that may take longer to be sold – for a fair market value – are not liquid, but fixed assets (or illiquid assets). If you read the business section in your newspaper, you will find the term liquidity with some frequency in descriptions of the finances of a company. Although the concept of liquid assets to be used somewhat differently in the business world, the same basic principles apply. The liquidity of a company is a measure of how far it can meet its obligations. If you have high liquidity, it means you have quick access to money (or may sell assets and raise cash) sufficient to satisfy its debts.

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