Businesses are more than just what they produce and put out to the public. While the end goal is to provide a service or a product that will be consumed it takes a lot of input and support resources to achieve that end. Those resources are the assets owned by the company and they provide a basis to estimate the value of an organization.
Types of Assets
Assets are any resource owned or controlled by an individual, a business or nation that is expected to provide some form of benefits in return. In acquiring assets those entities believe it adds value to their enterprise, and as such they generally provide prospective investors an idea of what is going to generate cash flow, minimize costs and improve sales for the organization. When looking into an organization’s assets keep in mind the two main categories that classify assets; tangible and intangible.
Tangible assets are items or concepts that take a physical form that can be used or traded to create value.
- Financial assets are tangible assets in the form of investments. These include stocks, bonds, securities and preferred equity held in other institutions.
- Current Assets are items that are expected to be converted for cash within a year or other short-term period. Inventory, prepaid expenses, accounts receivable and cash equivalents fall into this group.
- Fixed assets are the items used to produce or create the end product, which will be held by the business for the majority of their usefulness. Machinery, buildings, plants and other equipment that are owned or used over long-term periods which generally won’t be resold are in this category.
These types of assets are easily tracked and accounted for by a business and have clear cash values within their respective markets.
If tangible assets are things that have a physical form, then intangible assets are those that don’t have a physical appearance. Trademarks, people, branding, business methodology, goodwill and other intellectual property fall into this group. These types of assets help in the production or sales of the end product. Having a highly visible public figure as a representative or employee, like a Michael Jordan or Steve Jobs, helps in development of new products and sales by association. Having a well known brand name, such as Ford, brings in consumers just because of the branding. While these intangible assets are held by the business, and it’s clear they have an impact on profitability, the cash value of such assets is difficult to discern. Considering the value of all assets is a good way to estimate the value of the business as a whole.
The balance sheet of a firm records the monetary value of the assets owned by the firm.