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Asset

An asset is any property owned by a company or person that has economic value, especially those that can be converted to cash.

Contents

Expanded Definition

An asset is an item that has value and can be converted into cash. Examples include cash (duh), securities, bonds, property such as computers or trucks, land, buildings, accounts receivable, and prepaid expenses.

For individuals, they may include bond, stocks, mutual funds, the house, car, jewelry, rugs, and your looks if you're a supermodel.

On the balance sheet, they are generally listed in order of their liquidity -- that is, how close or how easily they can be converted to cash. The more liquid ones, such as cash, short term investments, and accounts receivable (money owed to the company for goods or services already delivered) are listed first. Inventory is generally considered a "current" asset in that it is meant to be turned into goods and then sold within a year. After the current assets are long-termed ones, such as the property the company owns (like desks, computers, buildings, or delivery trucks), net of depreciation. Also included are intangible assets such as patent rights, goodwill, trademarks, and copyrights.

Net asset value

One way to value companies is based on their net asset value. This is the value of all the assets minus all the liabilities. It's also known as shareholder's equity.

Occasionally you can find a company that for one reason or another is trading for less than the value of the assets on its books. This can especially be the case for companies that own a lot of desirable land or real estate since the value of that asset, as stipulated by generally accepted accounting principles (GAAP), is carried at cost on the books and depreciated over time. When it comes to real estate, however, the value there actually tends to increase over time.

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