What is net operating assets?
A method of valuing a business based on its operating activities. It’s calculated by subtracting the company’s operating liabilities from its operating assets.
Key takeaways
Net operating assets (NOA) is a business valuation method calculated by subtracting operating liabilities from operating assets, focusing purely on a company's operating activities rather than financing activities.
Operating assets include revenue-generating items like accounts receivable, inventory, and fixed assets such as plant or equipment; operating liabilities include accounts payable, accrued expenses, and tax payments.
NOA calculations are commonly used to value companies outside the financial industry by reformatting balance sheets to remove financing activities that don't create value for the business.
The NOA calculation excludes all financial assets and liabilities, including cash, marketable securities, and long-term loans, to focus solely on operational aspects of the business.
By enabling operating performance to be valued independently from financing performance, NOA provides a more accurate valuation of a company's true operational capabilities and worth.
Where have you heard about net operating assets?
The net operating assets (NOA) calculation is often used when valuing companies outside of the financial industry. By reformatting the balance sheet to remove financing activities that don’t create value, the valuation is based purely on the company’s operating activities.
What you need to know about net operating assets.
Operating assets are the assets a business uses to generate revenue. For example, accounts receivable, inventory and fixed assets such as plant or equipment. Operating liabilities are what the business owes others and can include accounts payable, accrued expenses and tax payments.
When calculating NOA, all financial assets and liabilities (including cash, marketable securities and long-term loans) are removed from the calculation. This means that the operating performance of the business can be valued independently of the financing performance, giving a more accurate valuation of the company.