Net operating assets what are they and how are they used?

Net operating assets are the basis for the operation of any business or company. They will be those assets that are used to measure the operability of a company when it comes to creating income.

We will find all the resources applied in any company operation in the net operating assets. However, it should note that operating assets will exclude financial assets and possible financial obligations of the company.

Net Operating Assets (NOA)

NOA would be all assets used in the companies’ operations minus liabilities incurred. In other words, it would be the net difference between the set of operating assets and operating liabilities.

This metric is commonly used to know how a company is performing operationally. Therefore, it is effectively a measure of a company’s efficiency. This metric is usually applied to any operation carried out to analyze or improve income.

How to define the NOA?

There are different ways of categorizing NOAs. The easiest net operating assets to detect are cash and equipment. However, so-called intangible resources can also be used.

Operating assets will mostly be current assets differently than fixed or long-term assets. They will use them regularly in the day-to-day operations of the company.

There is no single type of operating asset. It is important to distinguish the different forms they can take. These would be the main ones:

Current Assets

This class includes, in addition to cash, accounts receivable, inventory, and those assets that are to be used on a day-to-day basis in any operational activity of the enterprise.

Only the operating cash balance is reported here as an active asset. For example, a medium- or long-term cash deposit that provides interest is classified as a financial asset.

Expenses paid in installments

These would be operating expenses that have been paid in advance—for example, trade prepayments, prepaid service invoices, or inventory payments.

It is very important to record these as sometimes, as they are deferred payments, they can jump dates in the analysis.

Intangible assets

Operating assets can be categorized as tangible or intangible. As we have seen, Tangibles can include anything from inventory to purchases, equipment, or machinery.

On the other hand, intangibles can include cash balances, accounts receivable, etc. It should also be noted here that the calculation of intangibles is not always properly entered. This fact is very important.

How are net operating assets calculated?

The NOA calculation is based on a formula in which total operating liabilities are subtracted from total operating assets.

We must follow several steps to apply this formula:

  • Enter all of the company’s operating assets: In this step, you must calculate all of the company’s operating assets. Here it is necessary to differentiate between operational and financial assets. Be careful not to get confused, as it can sometimes include cash.
  • Identify all operating liabilities: as with assets, we will need to calculate and determine operating liabilities. That would consist of salaries, taxes, accrued expenses, or accounts payable.

Once both figures have been determined, we use the formula and subtract the total operating liabilities from the total operating assets. That will give us the NOA.

Is it possible to measure the NOA?

Actually, in addition to its calculation, it is also possible to determine the impact of the NOA on the company.

Profits in companies can have different metrics. A quite common formula is when a categorization of the performance of operating and financial activities is made. Considering that most companies’ revenues will come from their operational activities, it is important to keep track of the return on operating assets.

It is considered a measure of operational efficiency. Therefore, it is not only possible to measure it but also to use it to determine the company’s financial health.

In addition, one could go further by introducing other elements that analyze performance. In this way, the calculation would be much more accurate and deeper.