How this calculator works
Net operating assets is the capital a business needs for its operations: operating assets minus operating liabilities. Operating assets include receivables, inventory, prepaid expenses and the fixed assets used in the business. Operating liabilities include trade payables, accrued expenses and other obligations that arise from running the business rather than from borrowing. The difference is the amount the operating side must finance, whether from debt or equity. Analysts use it to measure how much cash growth in sales requires, and it is the denominator in the accrual ratio. Many practitioners exclude cash and marketable securities from operating assets because they are financing assets, so check the convention before comparing figures.
Formula
Operating assets = cash + accounts receivable + inventory + prepaid expenses + fixed assets, or the total entered directly. Operating liabilities = accounts payable + accrued operating expenses, or the total entered directly. Net operating assets = operating assets - operating liabilities.
Worked example
Cash of $50,000, receivables of $150,000, inventory of $120,000, prepaid expenses of $20,000 and fixed assets of $400,000 total $740,000 of operating assets. Payables of $90,000 and accrued expenses of $50,000 total $140,000. Net operating assets are $600,000.
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Frequently asked questions
Should cash be included in operating assets?
Usually not. Cash and marketable securities are financial assets that support the whole firm, not a particular operation. Excluding them gives a purer measure of operating capital. This calculator includes the cash field so you can follow either convention, but enter zero if you want the stricter definition.
How do operating liabilities differ from debt?
Operating liabilities arise from day-to-day activity, such as payables and accrued wages, and usually carry no interest. Debt is a financing liability. Net operating assets excludes debt, which is why the measure focuses on the operating side of the balance sheet.
Why does net operating assets matter?
Growth usually requires more receivables, inventory and fixed assets. If net operating assets grow faster than sales, the business is consuming more capital per dollar of revenue. Comparing the change with profit is the basis of the accrual ratio, a common earnings quality test.