Total assets are everything owned by a company or individual, including physical items and intangible items like patents and trademarks. They are listed on a balance sheet based on liquidity, with the most liquid assets at the top. Liabilities must be subtracted from total assets to determine net asset value.
Total assets are everything owned by a company or individual. For a company, they are listed on a balance sheet. These assets are valued based on their purchase prices, not the current market value of the assets.
Assets can generally be converted from a physical item to cash. The ease with which an asset can be converted into money is known as liquidity. Assets can take many forms, from real estate and investment securities to equipment and inventory. Cash also contributes to the sum of assets.
Total assets are listed on a company’s balance sheet based on their level of liquidity, which is based on the speed with which they can be exchanged for cash. The most liquid asset can be found at the top of a financial statement. These assets can include cash or short-term investments, such as stocks and accounts receivable, which are funds owed to a business.
Below the most liquid investments in a financial statement, current assets are described. Included among current assets is inventory. These are items that are expected to sell and generate income within a 12-month period. The next group of assets are long-term assets. These are the items that would take the longest to convert to cash and include things like real estate, trucks, and other machines.
Intangible items also contribute to total assets. For example, patents, trademarks, and licenses are included in the sum of total assets. Investments, such as stocks and bonds, are also grouped under intangible assets. A company’s website could be treated as a tangible or intangible asset, depending on the region in which the company’s headquarters are located.
Total assets are inherently based on the purchase value of an item, so the price of many assets reflected on a balance sheet may be incomplete. This is because the market value of an asset, such as real estate, can appreciate or depreciate in value over a period of time. That change in value will not be reflected in the purchase security price, which is the price on the balance sheet. As a result, investors may not always properly value a company and may unknowingly be overly positive or negative on a stock. The value recorded on a financial statement is the purchase value, so investors might not be able to recognize the fact that land has increased in value over time, for example.
The other part of the total assets on a company’s balance sheet are liabilities. For financial analysts to determine an entity’s net asset value, liabilities must be subtracted from total assets. The result is known as shareholders’ equity.
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