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![Page 1: EQUITY AND NET WORTH ACCOUNTING IN THE NATIONAL BALANCE SHEETS Peter van de Ven Head of National Accounts, OECD NBS-OECD Workshop on National Accounts.](https://reader035.fdocuments.us/reader035/viewer/2022062517/56649f325503460f94c4dd05/html5/thumbnails/1.jpg)
EQUITY AND NET WORTH ACCOUNTING IN THE NATIONAL BALANCE SHEETS
Peter van de VenHead of National Accounts, OECD
NBS-OECD Workshop on National AccountsGuangzhou, December 2 – 5, 2014
![Page 2: EQUITY AND NET WORTH ACCOUNTING IN THE NATIONAL BALANCE SHEETS Peter van de Ven Head of National Accounts, OECD NBS-OECD Workshop on National Accounts.](https://reader035.fdocuments.us/reader035/viewer/2022062517/56649f325503460f94c4dd05/html5/thumbnails/2.jpg)
Introduction
• Net Worth in SNA 2008
• Estimating shares and other equity
• Negative Net Worth?
• Own funds in business accounting
• Some examples of macro-economic indicators from national accounts
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Net Worth in SNA 2008
• Assets
– Non-financial assets• Produced assets
– Fixed assets
– Inventories
– Valuables
• Non-produced assets– Tangible assets
» Land
» Mineral and energy resources
» Other natural resources
– Intangible assets
– Financial assets
• Liabilities
• Net worth
![Page 4: EQUITY AND NET WORTH ACCOUNTING IN THE NATIONAL BALANCE SHEETS Peter van de Ven Head of National Accounts, OECD NBS-OECD Workshop on National Accounts.](https://reader035.fdocuments.us/reader035/viewer/2022062517/56649f325503460f94c4dd05/html5/thumbnails/4.jpg)
Estimating shares and other equity
• Net Worth according to SNA 2008 includes the item “shares and other equity” as a liability
• Depending on the estimation of “shares and other equity”, net worth can be positive, zero or even negative
• Methods for calculation “shares and other equity”– Listed shares: stock market value
– Unlisted shares: see next slide
– Other equity = equity in corporations that do not issue shares (e.g. public corporations, quasi-corporations, central bank, unlimited liability corporations): set equal to assets minus debt liabilities => Net Worth = 0
![Page 5: EQUITY AND NET WORTH ACCOUNTING IN THE NATIONAL BALANCE SHEETS Peter van de Ven Head of National Accounts, OECD NBS-OECD Workshop on National Accounts.](https://reader035.fdocuments.us/reader035/viewer/2022062517/56649f325503460f94c4dd05/html5/thumbnails/5.jpg)
Estimating shares and other equity
Valuation of unlisted shares (see SNA 2008, para. 13.71):•Recent transaction price
•Net asset value (appraisals by management or independent auditors)
•Present value or price to earnings ratio
•Book values reported by enterprises
– Adjusted for differences in valuation
– Adjusted with ratio share value / book value of listed corporations
•Own funds at book value
•Apportioning global value, using ratio of sales or other indicators to total share value (applicable for e.g. global enterprise groups)
![Page 6: EQUITY AND NET WORTH ACCOUNTING IN THE NATIONAL BALANCE SHEETS Peter van de Ven Head of National Accounts, OECD NBS-OECD Workshop on National Accounts.](https://reader035.fdocuments.us/reader035/viewer/2022062517/56649f325503460f94c4dd05/html5/thumbnails/6.jpg)
Estimating shares and other equity
Valuation of unlisted shares (see SNA 2008, para. 13.71):•Recent transaction price
•Net asset value (appraisals by management or independent auditors)
•Present value or price to earnings ratio
•Book values reported by enterprises
– Adjusted for differences in valuation
– Adjusted with ratio share value / book value of listed corporations
•Own funds at book value
•Apportioning global value, using ratio of sales or other indicators to total share value (applicable for e.g. global enterprise groups)
![Page 7: EQUITY AND NET WORTH ACCOUNTING IN THE NATIONAL BALANCE SHEETS Peter van de Ven Head of National Accounts, OECD NBS-OECD Workshop on National Accounts.](https://reader035.fdocuments.us/reader035/viewer/2022062517/56649f325503460f94c4dd05/html5/thumbnails/7.jpg)
Negative Net Worth?
• For many corporations net worth will be zero or close to zero, depending on the valuation techniques for equity
• For listed companies with tradable shares, the market value of equity can be (substantially) different from assets minus debt liabilities (all liabilities excluding equity)
• If stock market value is higher, then negative Net Worth– Not all relevant assets giving rise to future benefits/profits may be
recognised and recorded : brand names, mastheads, organisational capital, etc.
– Volatility of stock markets, not properly reflecting the “true” underlying value of the corporation; speculative price movements
– Various valuation issues
![Page 8: EQUITY AND NET WORTH ACCOUNTING IN THE NATIONAL BALANCE SHEETS Peter van de Ven Head of National Accounts, OECD NBS-OECD Workshop on National Accounts.](https://reader035.fdocuments.us/reader035/viewer/2022062517/56649f325503460f94c4dd05/html5/thumbnails/8.jpg)
Own funds in Business Accounting
• Assets
– Non-financial assets• Produced assets
– Fixed assets
– Inventories
– Valuables
• Non-produced assets– Tangible assets
» Land
» Mineral and energy resources
» Other natural resources
– Intangible assets
– Financial assets
• Debt liabilities• (Provisions and contingencies)
• Own funds
![Page 9: EQUITY AND NET WORTH ACCOUNTING IN THE NATIONAL BALANCE SHEETS Peter van de Ven Head of National Accounts, OECD NBS-OECD Workshop on National Accounts.](https://reader035.fdocuments.us/reader035/viewer/2022062517/56649f325503460f94c4dd05/html5/thumbnails/9.jpg)
Further differences between SNA and Business Accounting
• Application of different valuation techniques, especially for non-financial assets (current replacement costs vs. historic valuation)
• Differences in asset boundary, especially concerning intangible assets
• All kinds of errors and omissions
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Example of macro-economic indicators from national accounts (1)
Ratio of debt to operating surplus for non-financial corporations
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Examples of macro-economic indicators from national accounts (2)
Ratio of debt to equity for financial corporations
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Examples of macro-economic indicators from national accounts (3)
Leverage of the banking sector: Ratio of selected assets to equity for financial corporations
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Thank you for your attention!
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