This non-current assets to net worth ratio calculator measures at which extent a company is investing in low liquid assets by comparing its non-current assets to its total net worth. The formula used is detailed below the application form.
How does this non-current assets to net worth ratio calculator work?
The algorithm of this non-current assets to net worth ratio calculator measures the proportion of long-term investments against its net worth:
NCANW ratio = Non-current assets / Net worth
In accounting non-current assets are considered to be items with a full value that will not be realized within one accounting year. Thus this type of assets are capitalized rather than consumed or expensed which means the cost of the asset will be registered over a certain number of years for which it will be used in the business cycle, instead of registering its acquisition cost to a single year.
Few examples of noncurrent assets that are stated in a company’s balance sheet are:
- plants and properties;
- investments made in another company;
- investments in intangible assets like brand recognition, intellectual property rights;
- equipment with a high value or that is used over a period greater than one year, which are not considered inventories.
The net worth figure of an entity is determined by subtracting the total outside liabilities from total assets figure.
The interpretation of the noncurrent assets to net worth ratio level
Typically, any level lower or between 1 and 1.25 (100% - 125%) is considered to be normal but please note that this range varies from one industry, market or economic environment to another.
While a too high ratio may be interpreted as a negative signal because it may indicate that the company in question relies too much on low liquid assets and so whenever required it will have difficulties in converting these assets in liquid instruments.
Example of a NCANW ratio calculation
For example, if a store has noncurrent assets estimated to worth $100,000 and a net worth of $90,000 then its noncurrent assets to net worth ratio would be $100,000/$90,000 = 1.11 (or 111.11%), which is an acceptable proportion.03 May, 2015