Can Net Assets Be Negative on a Balance Sheet?

Net assets, or equity, represents the value of business assets if all liabilities are paid off. High net assets on a balance sheet indicates a healthy, viable business. Low net assets means that the company doesn't have much cash and property relative to what it owes. If things are bad enough, a business can have negative net assets on the balance sheet.

The fundamental formula of accounting is that assets minus liabilities equals net assets, or equity. If the value of all assets is higher than the dollar value of liabilities, the business will have positive net assets. If total assets are less than total liabilities, the business has negative net assets. For example, a business with $500 in assets and $800 in liabilities has net assets of ($300). If this is the case, net assets can and should be reported as a negative number on the balance sheet.