Assets: definition, types, and facts
GlossaryWhat are assets?
Assets are all possessions of (a person) or a company with financial value that contribute to business operations. Think of a house, savings, an outstanding invoice, or equipment you have bought. Everything that represents value falls under this. All these possessions contribute to your total wealth.
Not a BUX investor yet? Create your account
What are assets in investing?
When you invest, these are the investment products your money is in. These include stocks, bonds, ETFs, or even an investment account at the bank. These assets generate income over time in the form of price gains or dividends.
Different types of assets: current vs fixed
It can be divided into two categories: current and fixed. By comparing these two, you gain insight into a company’s wealth and can assess whether the company has enough resources to meet short-term financial obligations.
Fixed: Possessions that last longer than one year.
Current: Possessions that you can usually convert into money within one year.
1. Current assets: a definition
Current assets are all possessions that you can convert into currency within one year or even sooner. You can see it as the fuel of a company: current assets are necessary for business operations and change in value daily. Current assets include:
- Inventory
- Debtors
- Liquid assets
- Deferred assets
Inventory
Inventory consists of the products, raw materials, or semi-finished goods that a company owns and are ready for sale. A good example of this is a stock of smartphones at a tech store.
Debtors
Debtors are third parties (customers, partners, etc.) who still have to pay: the outstanding invoices. It is essentially the money that you, as a company, are yet to receive.
Liquid assets
Liquid assets is a fancy word for cash and the balance on your bank account. It is the most direct form of current assets because it is usually immediately available and usable.
Deferred assets
These are the costs you have already paid or revenues you already have, but which still need to be invoiced at the end of the financial year. Prepaid rent is an example of deferred assets.
2. Fixed assets: a definition
Fixed assets are a company’s possessions for the long term. They form the permanent parts of business operations. These include:
- Tangible fixed assets
- Intangible fixed assets
- Financial fixed assets
Tangible fixed assets
Tangible fixed assets are the physical possessions of a company. This includes real estate, machinery, computers, and vehicles.
Intangible fixed assets
Intangible fixed assets are possessions you cannot touch, but which are valuable. Think of permits, patents, or software.
Financial fixed assets
Financial fixed assets are the financial possessions of a company. Financial assets involve investments or participations in other companies in the form of bonds (loans) and stocks.
What is the goal?
The primary goal of assets is to create economic value and achieve positive results for a company or person. However, there are more goals:
- Capital creation: By generating profit and selling possessions, assets can increase the owner’s wealth.
- Value generation: They can increase in value and generate income, contributing to success.
- Operational support: They are important for business operations. Without machines, buildings, and inventory, a company simply cannot function.
- Financial health: It shows how strong the financial position is. They show which resources are available to achieve both short and long-term goals.
- Decision making: Insight helps in making important decisions about future investments and the management of financial resources.
Assets vs liabilities
Opposite to assets are liabilities. Liabilities are the debts and equity of a company. Together they form the balance sheet; assets are on the left and liabilities on the right. The balance determines how healthy your company or personal finances are. It is therefore important that assets and liabilities are balanced with each other.
Not a BUX investor yet?
Create your account in a few minutes and start building your wealth.
Investing involves risks. You can lose your investment.
All views, opinions, and analyses in this article should not be read as personal investment advice. Individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
