Many companies make the mistake of confusing net fixed assets with gross fixed assets. They are two different entities and both have their purposes. The first is an entity that produces income. The second is an entity that produces surplus revenue. Usually net fixed assets refer to accounts receivable and inventory. Net fixed assets also include the following: accrued expenses, guaranteed paid-in capital, invested payroll assets, accounts payable, trade debts, and other accrued liabilities.
A company can have either gross or net fixed assets. When it comes to accounting for the difference between them is significant. One account would be gross, while the other would be net. These terms are important in determining the method of recording, measuring, and reporting the company’s assets and liabilities.
In the past gross fixed assets were considered to be all net fixed assets while net fixed assets were those not included in the gross fixed assets. Nowadays, however, companies are using net fixed assets and gross fixed assets to determine the fair value of the company’s net worth. This is also used in the financial statement analysis of a company. It is also used in computing the net worth of a family owned business. Net fixed assets are further divided into two categories, namely tangible fixed assets and non-tangible fixed assets.
Outstanding fixed assets are those assets that are owned by a corporation but are not owned directly. Examples are accounts receivable and inventory. Ordinary assets are those assets that are produced by the business but not directly used in the production of the business. These include accounts receivable and inventory. Fund fixed assets refer to those assets that are owned by the corporation but not by shareholders.
Net fixed assets include net tangible fixed assets and non-tangible fixed assets. The value of these assets is equal to the total cost of production times the sales amount of the firm over a period of one year. Components of the total cost of production include costs for materials, labor, overhead, and sales. The value of net fixed assets therefore represent the value of the firm’s tangible assets less the cost of production times the sales amount.
Components of the value of net fixed assets are net profit, revenues, and assets owned at depreciated value. The cost of production will be considered to be the amount by which the firm’s actual expenses exceed its revenues over a one-year period. The revenue component of the net fixed assets will represent the amount by which the firm’s revenues exceed its expenses over the same period. There are many factors which will affect the value of net fixed assets and these will include the equity value of the company, market values of stocks and shares of ownership, and a variety of other factors.
Net fixed assets are usually included in the balance sheet of a firm. However, it can also be presented as a comprehensive statement of all of a firm’s assets and liabilities. Allocating a particular monetary value to net fixed assets assists management to determine whether the firm needs to make an equity investment. It can also aid management in determining whether an exit strategy should be implemented in order to mitigate the effect of realized losses.
Net fixed assets can be managed by a wide range of techniques. These include making purchases and holding long positions in securities that are correlated to net fixed assets. Management can also reduce funding for short positions and offset this with purchases of short positions that will artificially raise the firm’s net fixed assets. Changes in the price of the securities that are correlated to net fixed assets will result in changes in the value of the firm’s net fixed assets. This can be based on technical and fundamental analysis techniques.