Asset (economics)

A financial asset is any economic resource managed or owned by an individual or legal entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent the value of ownership that can be converted into cash.

Some of the most popular assets include, but are not limited to: cash, inventory, investments, PPE (property, plant and equipment), vehicles, furniture, as well as patents. Common types of assets include current, non-current, physical, intangible, operating and non-operating. 

Every asset can be distinguished by the fact that it possess three key characteristics:

• Ownership – the asset is at your disposal and can be converted into cash, had you the necessity to do so
• Economic value – the asset possesses a set economic value that can be monetised by selling or exchanging the asset
• Resource – the asset can be used to generate economic value in the future. 

It is possible to organise assets in the following ways, according to:

• Convertibility – alternatively, this category can also be split into long-term assets and short-term assets
  • Current Assets: assets that can be easily converted into cash or exchanged. Examples include cash, inventory, office equipment, accounts receivable.
  • Fixed Assets (alternatively labelled as non-current assets): assets that require longer time to sell or exchange. Examples include land, buildings, trademarks
• Physical existence – whether or not the asset physically tangible
  • Tangible Assets: assets that have physical characteristics and can be touched/seen. Examples include land, buildings, machinery
  • Intangible Assets: assets that do not have physical presence. Examples include goodwill, brand, intellectual property.
• Usage – how the asset generates value. 
  • Operating Assets: assets that are used in the day-to-day operations of the business. Examples include cash, machinery, inventory, patents
  • Non-Operating Assets: assets that are not directly required for operating the business, however, they still have the capacity to generate revenue. Examples include short-term investments, interest income, marketable securities.