Ever wondered how much 100 gums cost 20 years ago compared to today? Such calculations are simple, but for a company that could lose everything, these are crucial. Every company has its own assets. From computers to offices, lands, and buildings, you name them. They all came as a price sometimes, but now, they may be cheaper or much more expensive, depending on their value.
A lower ratio could mean that your assets are out of date, or they must be replaced or serviced. Take for example a water dispenser. You will see a tag there with a “last inspection” number. It may not be much, but after a few uses and services, that water dispenser will be out of date. Consider it like an expired product. If you think that the formula is fairly easy, you are right. Check below.
Net Fixed Assets Formula
After figuring out all the numbers on the balance sheet, you can subtract the accumulated depreciation from the total fixed assets. The accumulated depreciation means the sum of all the price differences from those assets.
Also, another formula and a more complicated one was developed by analysts that have eliminated the liabilities for the net amount. The formula should look like this:
This was developed to show the number of net assets owned by a company. And to make things crystal clear, “total liabilities” means the total debts and financial obligations of the company to other companies and people.
Analyzing the Net Fixed Assets Ratio
The result of the Net Fixes Assets formula should be higher than 50%. If it is higher than this mark, then it means that all the equipment is fairly new and functional. Once it goes down past the mark of 50%, then you should consider replacing it, changing some old parts or servicing it much more often.
When dealing with depreciation, keep in mind that some types of equipment are depreciating faster than other assets. Also, some old equipment is exposed to higher taxes than the new one. Take, for example, a vintage car. Everything is much more expensive for it and genuine parts are hard to find. Not to mention that some of them are just replicas. Getting around with taxes is quite frustrating when it comes to old or depreciated equipment.
However, even if many assets are depreciated or outdated, this doesn’t mean that they are worthless. Some of them are well past their 5-year marker and work just fine, while others can break in just one month. This can seriously get your calculations wrong on so many levels and get you all kinds of nasty surprises.
So, figuring out this difference can give you a birds-eye-view of all the assets you own in the company and how fast you will need to change them. Regardless of their age, some of them can actually work pass your expectancy.