Business Assets: Definition, Types & More
Etymologically, ‘asset’ refers to any useful or valuable thing or a person. In business terminology, asset refers to any kind of monetary value owned by a business.
Assume that you own a company called ‘Nestford’. Ranging from the office building you work in to the machinery you provide; from all the employees to the patents you have earned and the number of receivable accounts in your list, all of this falls under the big bracket called ‘assets’.
What is an asset?
Etymologically, ‘asset’ refers to any useful or valuable thing or a person. In business terminology, asset refers to any kind of monetary value owned by a business. In short, an asset is an economic resource that is either:
-not owned but is expected to provide benefits in the future
A company usually lists its assets in its annually maintained balance sheet. <link article>
Types of assets
The most common assets include cash and cash equivalents. Often, physical and tangible items pop into our minds when we think of assets but not all assets are tangible! Broadly, here’s how assets are usually classified:
Fixed assets are also known as capital assets. These are the tangible assets required to keep the business going. These assets can be regarded as the backbone of a business. A few examples of fixed assets include:
In reference to the above-mentioned examples, the workspace, laptops, furniture etc. form the fixed asset for Nestford.
Apart from being used to generate income, fixed assets are important for businesses because they can be sold and if the business is in financial difficulty. These can also be used as collateral while availing business loans.
Pro-tip: Having a high ratio of the fixed asset gets maximum eyeballs-from employees, customers and everyone in between!
All materials that are present in cash or are expected to get encashed within the tenure of one year are classified under current assets. Broadly, these include:
- Accounts receivable
With Attorney Rights, for example, the clients’ pending payments or some acquisition’s revenue form the part of current assets.
These are the assets that usually do not make a place in the company’s balance sheet but contributes substantially to the asset value of a business. Few examples of intangible assets are:
- Favourable finance
- Client list
- Skilled employees
Let’s say Nestford has some awesome clientele and hardworking employees, who literally keep- the company going. In this case, they build up what we call the intangible asset of the company.
PS: Now you know, assets are subject to changes and transfers (employees, for example)
What is the asset turnover ratio
Asset turnover ratio is a commonly-used term to measure the efficiency of the existing assets to generate revenue. Here’s how asset turnover can be derived:
Asset Turnover = Revenue/ Total Assets Value
Why assets matter
In all, assets define wealth. This means the asset is an important measure to look at for businesses and directly or indirectly help in projecting their growth bar. Asset valuation is a sensitive issue when a business is sold or acquired. Though it is easy to determine the value of fixed and current assets, measuring intangible assets is a problematic task. However, assets exist to add value to your business, always!