Asset definition

An asset can be defined as anything of value owned by an individual, business or nation that can be converted into cash. An asset is essentially anything which can be used to make money, sold to make money or both; what can be considered an asset ranges widely from manufacturing equipment to financial investments or intellectual property. Assets are often considered as equivalent to cash and are usually included on companies’ balance sheets.

Current assets vs fixed (noncurrent) assets

One way is which assets can be classified is through their convertibility – specifically how quickly they can be converted to cash. This distinction can also be seen through the prism of short-term vs long-term investments. Current assets are usually acquired and then sold in a reasonably small window for quick gain, while fixed assets are generally held on to for longer either because of value that they continue to add on a day-to-day basis or because they are appreciating. 

Current assets are generally accepted as being those that are designed to be converted easily to cash within a year. These include: 

  • Cash and cash equivalents
  • Stocks and shares
  • Inventory
  • Prepaid expenses
  • Agreed future payments

The purpose of companies owning current assets is often to cover short-term liabilities and day-to-day operational costs. Having a good portfolio of current assets is an advantage for businesses as it allows them to accommodate for changes in outgoings, helps with cash flow and gives them credibility as reliable borrowers. 

Noncurrent assets are assets which are intended to provide long-term benefit and are not intended to be sold until a longer period of time has passed. These include:

  • Property 
  • Equipment 
  • Land
  • Hardware
  • Vehicles
  • Patents

The long-term value that fixed assets can hold for a business can manifest itself in different ways. For example, for a car rental company, the long-term value of a car it buys will be in the money it will gain from its continued rental with the car itself eventually being scrapped or sold at a far lower price than its initial purchase cost. A piece of manufacturing equipment is valuable because it allows a company to produce products which are then sold at a profit. With property, its rental value can be a consideration, but its primary value is likely to be in its resale price as property is very often an appreciating asset. Fixed assets are also listed on companies’ balance sheets but are valued with depreciation in mind. 

Tangible assets vs intangible assets

Another way assets are categorised is by their physical existence. While both tangible and intangible assets are obviously valuable to companies, intangible assets usually can’t be displayed on a balance sheet as their value is more theoretical and not monetarily calculable. 

Quite simply, tangible assets are those which can be physically felt or accurately quantified. These include:

  • Property
  • Equipment
  • Land
  • Vehicles
  • Stocks and shares
  • Bonds

Intangible assets, however, are those which are not physical objects and cannot be measured easily. These include:

  • Patents
  • Brand value
  • Research and development
  • Licenses 
  • Goodwill

Net assets

‘Net assets’ is the term used to describe the difference between assets and liabilities. Net assets can apply to companies as well as individuals, although for individuals it is usually known as ‘net worth’. To determine a company or individual’s net assets, simply follow the following equation:

Net assets = All assets – All liabilities

Net assets are important to companies as they provide reasonable estimations of their value. However, difficulties can arise in calculating a business’s net assets as total assets and total liabilities can be tricky to nail down. Certain intangible assets may be perceived as very valuable to a company but are almost impossible to quantify, while the depreciation or appreciation on fixed, tangible assets can also be difficult to calculate. 

What is asset management?

For individual, less experienced investors and smaller companies who do not have the requisite expertise, asset management is likely to be needed. Asset management is the management of assets by a third-party professional who aims to increase the value of a portfolio.

Asset management involves a number of key responsibilities. One of these is close financial analysis; an asset manager must have comprehensive knowledge of the markets in which they are operating and continue to evaluate where new opportunities may arise. Once an asset manager has done this, their role is to maximise the value of their client’s portfolio of assets. This is where their knowledge and instinct should serve them well, allowing them to execute the right transactions for the need of the portfolio.

The most important responsibility of an asset manager is to act in the best interests of their clients. This requires them to be trustworthy; clients must be confident that their asset manager is not self-serving and is doing their best to protect and enhance their portfolio. Good asset management also involves respecting the risk appetite and long-term aims of the client – a manager’s natural risk-taking tendencies may have to be curtailed to fulfil the wishes of the client. Ideally, a client will guide the direction of investment and an asset manager will use their expertise to enact it.

Moneyfarm asset management services

Moneyfarm’s asset services can allow you to meet your investment goals through a combination of smart technology and expert human advisers. We believe that investing should be open to all, not just those investing large sums. 

After answering a few questions regarding things like your investment goals and risk appetite, we will match you with the portfolio which is right for you. We offer investment guidance in person, over the phone and via online chat and can help you whatever your needs – be it retirement planning or making your first investments. 

All seven of our portfolios are fully managed by our team of expert portfolio managers.