What are assets?

Assets are any item of property owned by the company that has value. On the balance sheet, assets are ordered, from top to bottom, in order of liquidity, which means how quickly something can turn into cash.

Assets are opposed to liabilities, another crucial component of the balance sheet, which are all of a company's financial obligations owed to others.

Current assets are expected to be sold, used, or exhausted through standard business operations within one year. This includes assets like cash, accounts receivable, and inventory.

Long-term assets are expected to benefit the company for longer than a year. These include tangible assets (things that can be touched) such as real estate, factories, and equipment. They also include intangible assets (things that can't be touched), such as goodwill from past acquisitions, copyrights, and patents.

Going line by line through the asset section

Cash and cash equivalents refer to cash in a checking account but also include other short-term assets, such as Treasury Bonds or CDs, within a few months of maturity. For the equivalent in your personal life, this is the money in your checking account.

Marketable securities are assets that can be readily turned into cash, such as Treasury Bonds or CDs with slightly longer maturity dates. It can also include stocks that a company is holding for short-term purposes. In your own life, these would be assets you might hold such as CDs or bonds with maturity dates six months out.

While this sometimes includes other things from the balance sheet, when companies refer to how much “cash” they have, it will usually be a sum of cash equivalents and marketable securities.

Accounts receivable are when a company has delivered a good or service, but not yet been paid for it.

Inventory is a company’s products that are for sale, but have not yet been sold.

Finally, the last item listed under current assets is prepaid expenses. Prepaid expenses are any service the company has paid for in advance, such as insurance or an annual subscription.

Long-Term Assets are assets that are expected to benefit the company for more than the next twelve months.

Long-term investments are assets that cannot easily be turned into cash within one year. In your personal life, this is like money held in a retirement account. It can be accessed, but not without difficulty and penalties.

Fixed assets are usually physical assets, such as land, machinery, buildings, and equipment, much like your home.

Goodwill might be the most difficult term to understand on the balance sheet. It is an intangible asset representing the premium paid over the fair market value for an acquisition. Under accounting rules, goodwill is audited regularly to ensure it is still worth what it was when the acquisition was initially closed. Goodwill values can be adjusted down if conditions worsen.

Intangible assets, unlike fixed assets, are things that benefit companies that you can’t touch. This could be intellectual property or patents that the company holds. In your personal life, this is roughly the same as a degree or professional certificate you earned.  

Other long-term assets are a catch-all category for things such as client lists, trademarks, brands, or even more esoteric things such as hedging programs that the company might have.

Key Takeaway

To summarize, assets represent the valuable resources a company owns, ranging from liquid cash to intangible items like goodwill. Understanding the distinctions between current and long-term assets helps investors assess a company's financial health and operational efficiency.

By analyzing the asset section of the balance sheet, one can gain valuable insights into how a company generates value and sustains its business over time.