Net Operating Assets

Calculate the net operating assets of Hirshleifer, Hou, Teoh and Zhang (2004): the operating assets minus the operating liabilities, scaled by the total assets at the start of the period.

Net operating assets are the cumulative difference between the operating income and the free cash flow a company has reported over the years, so a high value means its earnings have run ahead of its cash for a long time (a bloated balance sheet). Hirshleifer et al. show that investors overlook this, so that companies with high net operating assets earn lower earnings growth and lower returns over the following years than those with low net operating assets.

The formula is as follows:

The paper deducts the debt in current liabilities, the long term debt, the minority interest, the preferred stock and the common equity from the total assets for the operating liabilities; the total equity here holds the last three. The debt is the short and long term debt rows of the statements, without separately reported lease liabilities. The cash is the cash and cash equivalents plus the short term investments. The balances are those at the end of the period and the beginning total assets those at the end of the period before (the year before with annual data, the quarter before with quarterly data, as in the quarterly version of Hou, Xue and Zhang). Beginning total assets of zero or less give NaN.

Also known as: NOA, scaled net operating assets, balance sheet bloat.

Net Operating Assets in Python or via the MCP

Install the Finance Toolkit with:

pip install financetoolkit -U

Then call get_net_operating_assets as shown below.

from financetoolkit import Toolkit

toolkit = Toolkit(
    ["AAPL", "MSFT", "KO", "XOM"],
    api_key="FINANCIAL_MODELING_PREP_KEY",
    start_date="2021-01-01",
    end_date="2025-12-31",
)

toolkit.ratios.get_net_operating_assets()

Or, after setting up the Finance Toolkit MCP, ask:

Which returns:

Parameters

get_net_operating_assets accepts the following parameters.

Related Efficiency Ratios