Net Fixed Assets Formula | Example | Calculation | Analysis

Net Fixed Assets Formula | Example | Calculation | Analysis

Net fixed assets formula is use to measure the net book value of all fixed asset on the which is calculated by subtracting the accumulated depreciation from the historical cost of the total assets.

You can consider the purchasing price of all the fixed assets such as Vehicles, buildings, furniture, machinery, less the accumulated depreciation.

Net Fixed Assets Formula | Example | Calculation | Analysis

What is Net Fixed Assets? What are the fixed assets?

Definition: For the residual value of assets calculation we use Net Fixed Assets Formula. In the simple word, we can say that it calculate theoretically how much life or it compares the assets which left behind by the total purchase price with total amount depreciation which has taken since the assets purchased.

The low ratio represents that the Assets are outdated. Because for a long time the company did not change its assets from the market. Simply we can say that accumulated depreciation of the assets has high amount indicating their age.

Now, this metric does not use usually because management mostly examines their equipment and then guide the maintenance department to examine and change the assets or repair if necessary otherwise not.

The investor uses this metric for a different purpose. Net fixed Assets are helpful for investors to predict when the large future purchase will be made by them. It also tells the management efficiency of assets.

In the merger and acquisitions, this metric mostly use. For the acquisition of new candidates in the company, the company must analyze the assets and then put the values on these assets.

Relative to fix assets if the net amount is low then we say that the assets are old and need to change these assets.

How to fix net asset equation calculation

Net Fixed Assets Formula

When we subtract all accumulation depreciation from the total purchase price and cost of all improvement assets.

Net Fixed Assets

Net fixed assets= Total fixed assets- Accumulated Depreciation

This is so simple equation and all the values available on the balance sheet. Mostly fixed asset represents the tangible assets like building and machinery. Collective depreciation of assets is accumulated depreciation.

Many people take net fixed assets by removing the liabilities for a net amount like this

How to fix net asset equation calculation

Net fixed assets= (total fixed purchase price+ improvements)- (Accumulated depreciation+Fixed Assets Liabilities)

When we remove liabilities from the fixed assets then we can see how much net asset own company have. combined debt and all the financial obligation which is payable for the company to the individual are total liabilities.

Net Fixed Assets Formula Example

Let we consider there is a small business company which asset values available on the balance sheet. These values are following.

Fixed assets examples:

Total fixed Assets= $2,000,000

Leasehold Improvement= $800,000

Accumulated depreciation= $300,000

Total liabilities on fixed assets=$400,000

Now we put all these values in the above formula to find net fixed assets.

 

Net Fixed Assets Calculation

2,100,000=(2,000,000+800,000)-(300,000+400,000)

Now we take the above equation in the ratio to find the percentage.

75%=2,100,000/2,800,000

From the above metric and ratio, it is clear that the mention small business has only depreciated its assets 25% of the actual cost. The above result shows that the equipment used is not old and have plenty of use left for equipment.

Net Profit Margin | Formula | Example | Calculator

Net Profit Margin (NPM)

Net profit margin is the profitability matrix which is used to measure how much net income a company earned from its each dollar sales.

Definition: What is Net Profit Margin Ratio?

Investors and analyst used NPM ratio to measure the efficiency of the company to Net Profit Margin (NPM)measure the management and forecast future profitability on the base of the sales forecast of the management.

Investors compare net income to total sales to see what percentage of revenue used for the operating and not operating expenses, and what percentage of revenue used to pay shareholders or reinvest in the company.

As compared to low margin high margin is better. Because with high margin the company can easily convert more of its sales into cash at the end of the year or period. Between the industry the margin change drastically.

Formula

Net profit margin formula can be calculated by dividing the net income by total revenue.

Net profit margin = net income/total revenue

The calculation of net profit margin is so simple because from the income statement we easily get the values and put in the above formula to calculate the NP margin. Total revenue is the money which is earned by the company through its operations during the period.

After the payment of all the expenses, leftover income during the period is called net income.

For a better understanding of the net profit margin calculation, we take the example.

Net Profit Margin Example

Under the same industry company X, Y, and Z working. The income statement of these companies shows the following report.

On the basis of net income, we can compare company X and company Y but it does not tell the profitability’s entire story. The income statement shows that company Y is more profitable than company X, and company Z.

According to income statement company, X and company Z get equal profit so these have the same profitability.

Now we take the profit in dollar amount to know the revenue generated by these companies.

Now to find the profitability of these companies separately by using the NP margin equation.

From the above result it is clear that Company X and Z has the same net profit margin whereas Company Y has 10% greater NPM then company X and Y.

Analysis and Interpretation

How do Analysts look at Net Profit Margin?

Net margin is one of the most useful measurements in financial measurement if compared to the history of the company.

Through historical analysis of any company, we analyze that the profitability of the company is increasing or decreasing. From the trend analysis, we can find the sustainability of the company. If the margin is decline then it may be due to the high competition, reduced bargaining power, or inefficient cost of the company.

We can compare the margin of those companies through the NPM equation which works under the same industry. Because different industries have different cost base.

For the understanding of the driver of margin analysts striping down the various elements of NP margin. This ratio is used to analyze its impact on the return measures such as ROE and DuPont analysis.

For more Financial Ratio Check: 

Net interest margin

Net operating income (NOI)

Net present value (NPV)

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Net Present Value (NIV) Calculator | Formula | Example Explanation

Net Present Value (NPV)

Definition

Net Present Value (NPV)

Net present value (NPV) is the capital budgeting formula which is used to measure the difference between the present value of cash inflows and outflows of potential investment or project.

In other words, the net present value is the amount of money which an investment generated by comparing with cost adjusted for the time value of money.

The concept of NPV is the most important concept because the worth of 1 dollar at the present time is greater than the future time 1 dollar because of the interest and opportunity cost.

For the making of the investment decision sophisticated investors and the management of the company use the discount cash flow metrics or use the present value analysis.

Net Present Value Formula

The formula of Net present value (NPV) is complicated because for the calculation of this sum of all the future cash flow from investment, discount them at discount rate, and then subtract the initial investment from this.

NPV Formula component

  • Ct represents net cash flow for the period.
  • CO represents an initial investment
  • r represents the discount rate
  • t represents the number of periods in the above formula.

For a better understanding of the NPV, we use the nonmathematical equation.

NPV= Present value of future cash flows – Present value of the initial investment cost

From the above equation, we can say that NPV is equal to the difference of PV of initial investment and PV of the money which the investment will make in future.

Analysis

Management uses the net present value of the potential project of the company, expansion of business, new equipment to evaluate that what option is the best and in the future which is the best path which company takes.

Now we take the example of the manufacturing company which wants to expand its business But for this company does not have enough equipment. In this case, the company use the Net price value (NPV) calculator to find that the machinery purchasing is a good investment or not. It can get by comparing the amount of the cash inflows new machinery generating with the initial cost of the machinery.

If the NPV give the positive number it means that the future cash flow of the project is greater then the initial cost. So the company gets money on its investment. But if the NPV result the negative number it means that the future cash flow of the project is less then the cost of machinery on which purchasing company invests.

If the number in the result of NPV is positive and much high then company earn much more then the initial cost of the machinery. This ratio can be used to evaluate to project to find that which is the best project for the investment.

Net Present Value Example

Tom has a construction company which builds the small building. He wants to expand his business and want to construct the large building for which he needs the crane. The price of the crane is 100,000 dollars. He estimates that he can earn each year 20,000 dollars from this crane for the next 10 years.

So after 10 years, he will get 20,000 dollars money after 10 years from his 100,000 dollars investment. For the time value of money to adjust 200,000 dollars is not discounted.

If the interest rate is 10% then the discounted cash flow from the crane will be 122,891.34. Now we calculate the NPV for the investment of Tom.

Net Present Value

$22891.34 = $122,891.34 – $100,000

From the above result, it is clear that Tom not 100,000 dollars because when the time value of money adjusts then he makes only 22891.34 dollars. The above result is the good result because it is in positive number and Tom makes money on its investment.

For more Financial Ratio Check: 

Net income

Net interest margin

Net operating income (NOI)

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Net Operating Profit After Tax (NOPAT) | Formula | Example | Calculation

Net Operating Profit After Tax (NOPAT)

Net Operating Profit After Tax (NOPAT)

Net Operating Profit After Tax (NOPAT)

Net Operating Profit After Tax (NOPAT) is the profitability measurement which is used to calculate the theoretical cash of the company which company distributes among the shareholders of the company if the company has no debt.

In other words, NOPAT is the profit amount from the operation of the company after tax payment without regard to interest payment.

If the company have no obligations then the company can distribute the total money among the shareholders.

Definition: What is NOPAT?

Creditors and investors use NOPAT to find the efficiency of the company to pay its current obligations and pay to its shareholders. This is used only as a gauge because it does not give an accurate measurement.

The accrual method of earning creating the time difference between earnings are recognized for book purpose and earning are recognize or tax purpose. SO there is the difference between the calculated amount and the amount which is distributed among the shareholders.

To find the profitability of the company for the operations of the company analyst use this ratio. To find the operating efficiency of the company this ratio gives an accurate result.

Formula

NOPAT formula can be calculated by the product of operating income of the company and 1 minus the corporate tax rate.

Net operating profit after tax (NOPAT) = Operating profit x (1- Tax rate)

If the detailed income statement is not available and the net operating income cannot figure out then we need to use net income by backing out the interest payment as below.

Net Operating Profit After Tax (NOPAT) =Net profit + Net Interest x (1 – Tax rate )

It is the simple formula as compared to the above of this. Because operating profit, net income and interest expenses available on the income statement through which we can calculate NOPAT.

Example

Now we take the example of the light bulb manufacturer which report the below-listed items on the income statement.

  • Operating profit =$50
  • Tax rate = 30%

From this, we can calculate NOPAT by putting in the NOPAT formula as

NOPAT = 50 x ( 1 – 30% ) = 35 dollars

If we use the second equation of NOPAT then we need net income and net interest for calculation of NOPAT. By putting the values of these after the calculation then we get the same result of 35 dollars from it also. Both equations of NOPAT give the same result if the company have no debt to pay off.

For any business operating profit and net profit are 2 important parameters. Operating profit is used to find the operating efficiency of the business whereas net profit tells how much overall profit company gets. In the operating profit, the tax amount is not included whereas in the net profit tax amount include.

NOPAT is the operating profit after the reducing of taxes. Without debt the operating performance of the company calculated by the Hybrid calculation of NOPAT.

NOPAT Meaning _ Analysis and Interpretation

On a standalone basis,  the analysis of any ratio or number is not useful. For better results, you need to compare the history of the company with others in the industry. Through historical analysis, the analyst knows that the performance of the company improve or not and peer analysis shows that how the company stakes within the peer set in term of operational efficiency.

There are some reasons because of which NOPAT increases or decreases for some companies for 2 years or above. The changes in the result may be due to the operating margin or changing product mix etc.

For more Financial Ratio Check: 
Net present value (NPV)

Net profit margin

Networking capital ratio

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Net Income Formula | Example | Calculator | Definition

Net Income

Net Income Definition

Net Income Formula

Net income is also known as net profit which is used to measure the total revenue amount that exceeds total expenses. In order words, it shows, how much revenue left after the payment of all the expenses of the business. Net income is the amount which a company can save to pay off debt or for the investment in the new projects. This measurement is at the bottom of the income statement because of which many people prefer this as the bottom line.

Investor, creditors, and management focus on the net income calculation. Because of this calculation, they can know the financial health of the company and the ability of the company to manage its assets. Investors want to find that they can pay the dividend on their investment or not. Whereas creditors want to know that the company has the ability to pay off current debt with success operations or not. Management analyzes the ability of the company to pays salaries and bonuses to its employees by using this ratio.

Formula of Net Income

Net income formula can be calculated by subtracting the total expenses of the business from the total revenue.

Net Income = Total revenue – total expenses

From this equation management, investors, and creditors find the ability of the company to producing the profit.

If the revenue is not in the income statement then instead of revenue we can use net income from the gross profit. You have no need to subtract the cost of goods sold twice. Instead of revenue, you can use total revenue. Because of the simplicity of this equation, you have no need to use the net income calculator for this.

To understand net income in a better way we use the example calculation.

Net Income Example

There is the database and server technology company of Andrew.  Form different medical companies he manages the security, data, and server. From this, he makes the high revenue with fewer expenses. List of expenses for 1year listed in the income statement is

  • Revenue = 200,000 dollars
  • Computer expenses =10,000 dollars
  • Salaries =50,000 dollars
  • Utilities = 5,000 dollars
  • Taxes = 2500 dollars

From the above figure Andrew calculate his net income. Total expenses calculated by adding all the above expenses of salaries, utilities, and taxes which is equal to 67,500 dollars.

132,500 = 200,000 – 67,500

From the above result, it is clear that Andrew gets the revenue of 132,000 dollars which is the total profit of Andrew. If the revenue value is less then expenses value then company is in the loss. For example, in the above equation if the company have the profit of 50,000 dollars which is less then the 67,000 dollars it means that company has the loss of 17,500 dollars.

Analysis

If the net income is high then it is favourable for the business because this profit may be used to pay off current debt and for new investment.

Some company pays tax according to the profit because of which management reduce the profit on the tax basis to reduce the taxable income. due to this reason company have the book to tax adjustment at the end of each year. For the reflection of the tax, management adjusts their book income to get an advantage. For an instant, there are some companies Which use FIFO for the book purpose and LIFO for the purpose of tax for showing the reduce income on the tax return.

If the company shows the less income in order to pay the less amount as a tax on income, then the company have the problem to show high income to shows for the approval of the loan to the bank. To overcome this problem there are some revenue recognition rules which may be used.

For more Financial Ratio Check: 
Margin of safety

Marginal revenue

Net debt

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