How Are Net Fixed Assets Calculated?
Net fixed assets are calculated with the following formula: fixed asset purchase price + additions to existing assets - accumulated depreciation - accumulated asset impairment - liabilities associated with the fixed asset. Determining the net fixed assets is useful when evaluating an acquisition candidate because it allows a company to develop an opinion about another company's assets.
In an acquisition, a small net fixed asset number generally implies that a company has not invested in the replacement or upgrade of its fixed assets. Should the purchasing company proceed with the acquisition, it may find itself replacing fixed assets in the near future. Net fixed asset numbers do little good for internal purposes because managers can review the fixed assets themselves. If the fixed assets need to be replaced, managers can immediately make that decision.