Business Asset

Updated on April 4, 2024
Article byGayatri Ailani
Edited byGayatri Ailani
Reviewed byDheeraj Vaidya, CFA, FRM

What Is A Business Asset?

Business Asset is a type of asset that a business or a company owes in both tangible and intangible forms. The main use of the business asset is that it helps companies or organizations in the long run in terms of productivity, revenue, and efficiency.

Business Asset

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Business Asset (wallstreetmojo.com)

The assets may include raw materials, cash, office equipment, furniture, intellectual property rights, trademarks or building materials, etc. The company’s balance sheet represents the value of the company asset on the assets side. While assets add value to a company, liabilities challenge its productivity.

Key Takeaways

  • A business asset is any asset that a company or business owns in both tangible and intangible forms.
  • The primary application of a business asset is to benefit companies or organizations in the long run in terms of productivity, revenue, and efficiency.
  • Raw materials, cash, office equipment, furniture, intellectual property rights, trademarks, or building materials are examples of assets.
  • On the other hand, business liabilities are the money a firm owes to other people. Accounts payable, loans and overdue taxes are some examples of business obligations.

Business Asset Explained

A business asset is an object that a company possesses that has value and can be utilized to make income or otherwise benefit the business. Business assets are of two types, both tangible and intangible assets.

Tangible assets are those assets that have a monetary value and can have physical existence. In contrast, intangible assets cannot be touched but help generate revenue over time. For example, equipment, machinery, real estate, and inventory are tangible assets, while patents, trademarks, and copyrights are intangible because they are non-physical. Because they can use them to obtain loans or raise capital, assets play a significant role in a company’s balance sheet.

A business can categorize the assets according to how they are used and as current and fixed. Current assets are those that a company anticipates using up quickly or turning into cash in the next year or less. Accounts receivable (amounts due to the company by customers) and inventory are a few examples of current assets. These resources are crucial for a company to pay its short-term debts and finance its ongoing expenses.

On the other hand, fixed assets are items a business anticipates using for a longer period. Fixed assets include equipment, buildings, and real estate. Larger purchases that sustain a company’s long-term operations are classified as fixed assets. The company enters them as long-term assets on a company’s balance sheet, and their value depreciates over time.

There are a few examples of common asset classifications such as :

  • Assets employed in producing goods or services constitute operational assets. Examples include computers, automobiles, and manufacturing machinery.
  • Assets owned by a company to create income or capital growth are called investment assets. Stocks, bonds, and real estate are some examples.
  • Accounts receivable and inventory are assets used to finance business activities.
  • Support assets aid a company’s operations but are not used in producing goods and services, including equipment, furniture, building, etc.

Accounting for Financial Analyst (16+ Hours Video Series)

–>> p.s. – Want to take your financial analysis to the next level? Consider our “Accounting for Financial Analyst” course, featuring in-depth case studies of McDonald’s and Colgate, and over 16 hours of video tutorials. Sharpen your skills and gain valuable insights to make smarter investment decisions.

Examples

Let us look at business asset examples to understand the concept better:

Example #1

The tangible assets of a hypothetical EarthJoy General Store include inventory, a physical storefront, and intangible assets such as customer relationships and an online presence. These assets enable the store to operate and generate revenue by selling customers apparel and accessories. Therefore, the store must properly manage and maintain these assets to maximize their value and benefit the business.

Here is the list of tangible assets the store has:

  • Point-of-sale and cash register
  • Shelves and display cabinets
  • Clothing hangers and racks
  • CCTV surveillance and an alarm system
  • Clothing and accessory inventory in a delivery van

And the list of intangible assets includes:

  • Company name and logo,
  • An email list of customers and a loyalty program
  • Website and online store
  • Accounts and followers on social media, etc.

Example#2

The need for efficient asset management rises with the growth of a company. Asset management software help firms in this regard with cost-effective maintenance and tracking technologies. As a result, the asset management software market is thriving at the present moment, with an anticipated growth of around $2600 billion in 2032.

Business Asset Protection

Asset protection in business refers to a company’s steps to protect its assets from robbery or destruction. Asset protection is crucial in business for several reasons. They are:

  1. Financial Risk Reduction: Companies can reduce financial risks by safeguarding assets. For instance, the theft or damage of a company’s equipment could result in large financial losses. Therefore, businesses can lessen the risk of incidents and the severity of any losses by safeguarding their assets.
  2. Maintaining Operational Continuity: Protecting assets can also help firms retain operational continuity in case of a loss or disruption. For instance, if a company’s inventory is stolen or damaged, it may affect production or sales. Thus, carry on with regular operations by safeguarding their assets.
  3. Intangible Assets Possession: Businesses frequently possess intangible assets, which can be challenging to replace if lost. Examples include intellectual property and customer connections. The value of a company and its competitive advantage depend on the protection of these assets.

Business Assets And Liabilities

Here are the key differences between assets and liabilities:

  • In business, assets belong to a company and have a price. They can utilize it to make money or help the organization in some other way. As opposed to assets, liabilities are debts a business owes to third parties.
  • Liabilities appear on the right side of a balance sheet, with assets appearing on the left. A company’s equity is the sum of its assets minus its liabilities.
  • Assets minus liabilities equal capital; therefore, if a corporation has $100,000 in assets and $20,000 in liabilities, its capital would be $80,000.

For companies to stay in a good financial position and make a profit, it’s critical to manage their assets and liabilities effectively.

Frequently Asked Questions (FAQs)

How to value a business with no assets?

Business valuation methods assess the worth of a company based on the revenue it produces and how it compares with similar companies in the market. Physical assets are not always a necessity for business valuation in this regard. In the case of businesses with no assets, earnings, profitability, and cash flow are made the basis of evaluating their total worth.

What to do with assets when closing a business?

At the closing or dissolution of a business, the assets are sold to gain maximum money that can be used to pay off outstanding debts and liabilities of the company. All the assets are liquidated in the process, and the money will be shared between creditors or shareholders as the situation demands.

Why are assets important to a business?

Assets are the resources of a company that generates its revenue. Therefore, the value of an asset directly decides the efficiency and productivity of operations in a company which in turn influences the profit it makes.

This has been a guide to what is a Business Asset. We explain the topic in detail, including its examples, protection, & comparison with liabilities. You may also have a look at the following articles –