What is Net Operating Assets

CFA Level II
#1

I don’t feel like digging through the books. Thanks.

#2

me neither

#3

Net Operating Assets = (Total Assets - Cash) - (Total Liabilities - Total Debt)

#4

(assets - cash) - (liabs - debt) Note that the denom in the accrual ratios is avg NOA.

#5

+1

#6

Don’t forget accruals for I/S: NI- (CFO-CFI) and divide by {NOA(t)+NOA(T-t)}/2 for ratio

#7

zizou it is NI - CFO - CFI not the way you have written it. and remember to include the proper sign for the CFI. Book has it as NI - (CFO+CFI) and the two formulae that I have written are consistent, while the one you have is not.

#8

Thanks for the catch, CP. It was a typo.

#9

Yeah, you definitely don’t want to mess that up. You know +/- sign swapping is a rich source of distracting (and wrong) answer possibilities.

#10

So an increase in CFI would be subtracted? Same with CFO? Can someone please confirm. Thanks.

#11

CFI and CFO are subtracted from NI to find accruals for I/S. It’s a simple subtraction method. Let me recap since I f’d this up. T=whatever the time is and T-t=previous period For accruals on B/S: NOA= (Total Assets-cash) - (Total Liabilities- Total Debt) To find the accruals ratio: NOA(T)-NOA(T-t)/{NOA(T) + NOA(T-t)}/2 For accruals on I/S: NI-(CFO+CFI) Accruals ratio is NI-(CFO+CFI)/{NOA(T) + NOA(T-t)}/2 You want these ratios to be as low as possible. Low ratios mean that you have less accrual based accounting—>better quality of earnings. If I f’d this up, then I quit this thread and CP can set y’all straight.

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#12

There is no increase in CFO or CFI Current period Net Income - Current Period CFO - Current Period CFI = Cash Flow based Accruals. Denominator is Average NOA. NI could have a lot of accruals - because of management manipulation. Since CFO and CFI are comparing balance sheets of two periods - those accrual components have been removed when you include those. You are left with the Cash earnings component.

#13

Do you meant that you are left with the non-cash earnings component? Correct me if I’m wrong, but it looks like you’ve taken all the cash out of NI. At least that’s the way I think of it.

#14

you are left with the “true” cash portion. when you do your CFO calc. your calculation included the change in AR, change in Inventory etc. right - where there could have been manipulations.(I shouldn’t say manipulations, but accruals).

#15

I think you forgot cash equivalents and marketable securites: Isn’t NOA=(Total Assets - cash - cash equivalents - marketable securites) - (Total Liabilities - total debt)?

#16

geezus i probably spent 20 minutes on the NOA BS question, did like 30 different calc’s and still couldn’t come up with any of the choices presented.

#17

I get all the number correct, but forgot average, I HATE myself…cry :frowning: swellsrf Wrote: ------------------------------------------------------- > Net Operating Assets = (Total Assets - Cash) - > (Total Liabilities - Total Debt)

#18

so the accruals were $1666 - i could not get the BS accrual ration right so marked C which was 11.xx%

#19

I also got it as 1666 hope it is correct…

#20

i think C was right 11.xx%. they gave you Bs accruals for the company and average NOA right in the financial statements… Hope it was a simple plug in the formula question Accruals ratio = accruals/Ave NOA