Understanding what the term “tangible assets” means is crucial for individuals and businesses alike, as it plays a vital role in financial planning and decision-making. Read on for a detailed explanation!
What Are Tangible Assets?
Tangible assets can be touched, seen, and measured. They are considered to be real or physical assets that are used to generate income or increase a company’s value.
What You Need To Know About Tangible Assets
The tangible assets definition would not be complete without mentioning that they typically serve as a crucial foundation for businesses, providing them with the necessary means to produce goods and services.
Note that certain industries feature a higher proportion of companies with tangible assets, including manufacturing, technology, and the oil and gas spheres.
Some common examples of tangible assets are:
- Land
- Equipment
- Inventory
- Vehicles
- Machinery
- Stocks
- Bonds
- Cash
Tangible assets can be divided into two categories:
- Current assets, which are typically used by an organization within a year, such as inventory, marketable securities, and cash.
- Fixed assets aka non-current assets, which a company uses in its business operations for more than a year like office furniture, buildings, and machinery.
Investors and analysts use tangible assets as a means of evaluating a company’s financial performance and potential for growth. For instance, they can be used to calculate a company’s net worth, which equals the value of its assets minus its liabilities and is important for determining a business’s creditworthiness and ability to obtain financing.
Note that tangible assets have a useful life, which is the period of time during which they can provide benefits to their owner. For example, a vehicle may have a useful life of 5 years, after which it may no longer serve its purpose well.
Another important aspect of tangible assets is depreciation, which is their decrease in value over time due to wear and tear, obsolescence, or other factors. Besides, since tangible assets exist in the physical world, they are vulnerable to damage from natural events and other unforeseen circumstances.
