An asset represents a positive economic value owned in whole or in part by a company or individual. It represents ownership over the positive benefits and values that the entity inherently has, could have or creates continuously. Generally speaking it is any positive value on the balance sheet.
Types of used as investments:
Current assets are short-term economic resources that are expected to be converted into cash within one year. Current assets include cash and cash equivalents, accounts receivable, inventory, and various prepaid expenses.
Cash and cash equivalents are the easiest assets to value as there is very little time value or fluctuation in their inherent value. Cash and cash equivalents should have zero liquidity risk.
Fixed assets are long-term resources, such as plants, equipment, and buildings. An adjustment for the aging of fixed assets is made based on periodic charges called depreciation, which may or may not reflect the loss of earning powers for a fixed asset.
Generally accepted accounting principles (GAAP) allow people and companies to depreciate fixed assets under two methods:
- The straight-line method assumes that a fixed asset loses its value in proportion to its useful life. Think buildings.
- The accelerated method assumes that the asset loses its value faster in the first years of its use, and less in the latter. Think equipment or cars.
Financial assets represent stocks, bonds and other investments in the assets and securities of institutions and enterprises. Financial assets include stocks, sovereign and corporate bonds, preferred equity, and as those elements are combined into other securities includes exchange traded funds and mutual funds. Financial assets are valued using the capital asset pricing model (CAPM). Financial assets can be both marketable (sold broadly with a robust market) or non-marketable where there is no active bid for the asset and a market must be formed.
Intangible assets are legal representations of ownership of elements that have no physical presence, but their ownership can produce a sale or cash flow. They include patents, trademarks, copyrights, and royalties. Accounting for intangible assets differs depending on the type of asset, and they can be either amortized or tested for impairment each year. Valuation and marketing of intangible assets is by far the hardest category of assets to own and manage.