Net assets represent the difference between a company’s total assets and its total liabilities. It reflects the residual value of a business that belongs to its owners or shareholders after all obligations have been settled. In accounting terms, the formula is:
Net Assets = Total Assets – Total Liabilities

Net assets are also referred to as owner’s equity, shareholders’ equity, or net worth, depending on the type of entity. For example, in a sole proprietorship, it may be called owner’s equity, while in a corporation, it’s known as shareholders’ equity.

Net assets are a key indicator of a company’s financial health. A positive net asset balance means the company has more assets than liabilities and is generally considered financially stable. A negative balance suggests the company owes more than it owns, which may signal financial distress.

In nonprofit organizations, net assets are categorized as restricted (funds limited by donors for specific purposes) and unrestricted (funds available for general use).

Understanding net assets helps stakeholders assess the value and solvency of a business. It’s also essential when evaluating mergers, acquisitions, or investment opportunities, as it offers insight into what would remain for the owners if all debts were paid off.