The Net fixed assets formula is used to measure the net book value of all fixed assets 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.
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The low ratio represents that the Assets are outdated.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 a 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= 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
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 us consider there is a small business company which asset values are 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.
Now we take the above equation in the ratio to find the percentage.
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.