What is an Asset?

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Definition:

An asset is cash or anything of value that a company, person, or other entity owns and can reasonably expect to generate cash in the future.

🤔 Understanding an asset

In corporate accounting, an asset is any valuable item that belongs to a company and that the company reports on its balance sheet. A company generally keeps assets because it expects a future gain — enhanced company performance, increased company value, ongoing cash flow, or profit from the sale of the asset. An asset may be a physical asset (e.g., equipment, vehicle, cash) or an intangible asset (e.g., trademark, patent, company goodwill). Assets play a significant role in accounting and are generally categorized by their liquidity, tangibility, and usability in business operations. Individuals, governments, and other entities also own assets.

Example

Let’s take a look at Apple’s total assets on its balance sheet for the quarter that ended December 28, 2019. You can see the wide range of company assets Apple holds (all values below are in millions):

Current assets: Cash and cash equivalents $39,771 Marketable securities $67,391 Accounts receivables, net $20,970 Inventories $4,097 Vendor non-trade receivables $18,976 Other current assets $12,026 Total current assets $163,231

Non-current assets: Marketable securities $99,899 Property, plant and equipment, net $37,031 Other non-current assets $40,457 Total non-current assets $177,387

Total assets $340,618

(Source: Apple Quarterly Reports)

Apple had total assets valued at over $340 billion as of December 28, 2019.

Takeaway

Assets are kind of like office supplies…

An office needs supplies like printers, paper, binders, chairs, and desks in order to support the daily operations of the business. Companies believe that each of these resources, or assets, have worth and will provide benefits such as higher profits.

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What is an asset?

Assets are resources that a company owns to sustain its daily operations or generate revenue or other types of benefit. All company assets have an assigned dollar value, which is recorded on the firm’s balance sheet.

While a business controls the assets listed on its balance sheet, the business may not be the actual owner of all of those assets. Some assets may be financed through debt (e.g., a loan to purchase a fleet of 150 delivery vans), and ownership of assets remains with the lender until the company pays off the outstanding debt.

By subtracting all of those outstanding liabilities from its total assets, a company determines its equity — the portion of the business that belongs to its owners. Companies keep track of their assets, liabilities, and shareholders’ equity on their balance sheets.

Keeping track of assets is important because they signal a company's ability to sustain operations, financial health, and overall performance. Investors, analysts, creditors, and other stakeholders often use assets in a variety of financial ratios to evaluate a company.

What are some examples of assets?

Assets are classified according to how easy it is to turn them into cash (current assets vs. fixed assets), whether or not they’re physical (tangible assets vs. intangible assets), and whether or not they’re used in business operations (operating assets vs. non-operating assets).

Current Assets

A current asset can quickly turn into cash within 12 months. Current assets are liquid assets — they are considered a means of quick cash flow. Company owners need to pay some bills quickly, and current assets, such as cash and cash equivalents, help the owners settle current liabilities in a timely manner.

Fixed Assets

Unlike current assets, fixed assets take longer than 12 months to convert into cash. Fixed assets are also referred to as non-current assets.

Tangible Assets

Tangible assets are assets that you can touch, feel, and see. Tangible assets are also referred to as physical assets.

Examples of tangible assets include:

  • Cash
  • Cash equivalents
  • Property
  • Equipment
  • Inventories
  • Investments
  • Marketable securities

Intangible Assets

Intangible assets are the opposite of tangible assets because you can’t touch, feel, or see intangible assets.

Here are some samples of intangible assets:

  • Intellectual property
  • Software
  • Computer-related assets
  • Licenses
  • Government grants
  • Secret formulas
  • Goodwill

Operating Assets

Operating assets are necessary for daily business operations and are essential to generate revenue through core company activities. For example, Starbucks must have coffee beans to create a cup of coffee that it can sell to you.

Examples of operating assets include:

  • Cash
  • Inventories
  • Equipment
  • Trademarks
  • Copyrights
  • Secret formula
  • Permits
  • Licenses

Non-operating Assets

Non-operating assets aren’t necessary to complete daily business activities but may still create a revenue stream for the company. A company generally owns non-operating assets because it expects they will provide some kind of benefit in the future.

Examples of non-operating assets include:

  • Short-term investments
  • Long-term investments
  • Marketable securities
  • Undeveloped land

What are the types of fixed assets?

Fixed assets are assets that take longer than 12 months to turn into cash or that have a useful life longer than 12 months.

Fixed assets can be further classified into different types.

  • Fixed assets may be tangible assets, also known as physical assets, (e.g., property, plant, and equipment) or intangible assets (e.g., long-term investments, trademarks).
  • Fixed assets may be operating assets — used in daily business operations (e.g., operating lease, manufacturing equipment, goodwill) or non-operating assets (e.g., long-term investments, vacant land).

However, a fixed asset can never be a current asset, which is why fixed assets are also called non-current assets.

What is the difference between total assets and total liabilities?

The main difference between total assets and total liabilities is that total assets provide a future benefit, and total liabilities provide a future financial obligation.

By taking a look at total assets and total liabilities in a company’s balance sheet, you can determine the portion of total assets actually owned by a company.

Total assets indicate the value of all resources controlled by the company, and total liabilities specify what part of those resources the company financed with debt.

By subtracting total liabilities from total assets, you can determine the shareholders’ equity of a company.

How do you find total assets on a balance sheet?

A balance sheet is one of the important financial statements that a company makes available to its owners and shareholders. The ability to access a company’s balance sheet depends on whether the company is private or public. Only publicly held companies are legally required to disclose their balance sheet on filed quarterly financial reports (10-Q) and annual reports (10-k).

If you’re looking for the balance sheet of a publicly-traded company, then you can often find the balance sheet under the “investor relations” section of the company’s website. You can also find a company’s quarterly and annual reports at the U.S. Securities and Exchange Commission (SEC)’s website using the EDGAR search feature.

Using Apple’s SEC filing for the quarter that ended December 28, 2019, as an example, you would scroll to the section titled “Financial Statements” and find the balance sheet on page three. The balance sheet first reports the current assets and then non-current assets. The line item “Total assets” sums the two. It reports total assets of $340,618 million for Apple as of December 28, 2019. (Source: Apple Quarterly Reports)

If you’re looking for the balance sheet of a private company, then you would need to request access from the company owners and/or managers.

How do you calculate total assets?

The formula to calculate total assets is:

You can find both the total current assets and total non-current assets on the balance sheet of a company.

Total assets are the total sum of the book values of all the assets owned by a company. To calculate the book value of a company’s asset, make sure you are subtracting any accumulated depreciation and amortization associated with the assets. The consolidated balance sheet included in the quarterly or annual filing of a publicly-traded company will already have subtracted the accumulated depreciation and amortization for you.

By using the asset values reported on the balance sheet of the public company filings, you’re making sure to already account for accumulated depreciation and amortization.

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