A company’s assets and Liabilities of a company contain information about the balance sheet, which are divided into two categories. Sometimes it is referred to as the uses of funds or the source of funds by some companies. The third section is the equity which is the balance sheet. It includes information about the company capital, the issuing shares raised, and retained annual earnings.
These two sources, assets and liabilities, let’s seen it further.
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What are Assets?
According to the International Financial Reporting Standards (IFRS), an asset is a resource controlled by the entity (i.e., company) due to past events and from whom future economic benefits will flow the entity.
It means that any company assets legally owned by the company are expected to generate future revenue and assets. It can be either long-term (fixed), short-term, current, tangible, or intangible, and purchased or internally developed.
This of two types:
- Current Assets
- Long term Assets
Current Assets include Cash, short-term investment, Account Receivable, and Inventories.
Long-term assets include land, machinery, building, patents, and goodwill.
Tangible Long Term Assets
Long-term help the company produce goods and services that it sells to earn revenue. It includes this category’s land, plant, machinery, and equipment. Every year it goes through depreciation which is expected of land, to lose a part of its original value owing as the assets go older and become more obsolete, their value fall.
It has to be replaced by a new one to keep the company’s earnings potential. When analyzing long term , you should pay particular attention to decisions regarding the age and depreciation of it. These are some of the questions that you might like to ask.
- What long-lived assets does the company own?
- How old are these assets?
- Are they sufficient for the company to achieve its future growth objectives?
- What will it cost the company to replace them?
- What are the new assets the company is investing in/developing?
- What stage of purchase development are they in?
- What new capabilities will the new assets bring to the company?
- Do they signify a shift towards a new business line/product?
Intangible long-lived assets
These are neither touched nor touched. They only exist and contribute significantly to its income. These are called intangible assets. It includes copyrights, patents, trademarks, and licenses.
Long-term are categorized as they generally provide benefits over a long period. Amortization is the non-cash depreciation-like charge from which the value is deducted.
While assessing the intangible , it determines whether these are that a company can earn revenue from in the future and their value. As in IT companies, those products are entirely intangible because they are developed internally, and their importance cannot be verified because there is no proof of their purchase. It has no way of demonstrating that it can generate money in the future.
Accounts Receivable
A company’s essential component is cash, equivalent to the short-term investment in securities like shares and bonds in the companies.
They are almost good in cash because they can be quickly converted into as their combined value is high; it must be tempting to ask why the company is holding such a large amount of cash and cash equivalents.
- Does it have investment requirements that need to be financed?
- Is it contingency for expenses it expects to come about imminent?
If the above is n, other than these, companies must distribute their cash to their shareholders as a divided repurchase of their shares.
Intangible Long-lived Assets:
It has another category of current which refers to the good currently in storage with the company. It has the form of raw material, work-in-progress or finished products. These companies hold the possible minor inventory because inventory entails costs, such as warehousing costs, insurance, etc.
Instead of having the inventory, companies will organize their production so that the raw materials arrive at the right time to start production and goods are available for delivery. Some companies require large quantities of inventory; they are good are perishable.
As companies have extensive inventories that cannot be maintained, valid for perishable goods, that could indicate the company is having difficulty selling its products and increasing the lists. This can be a problem for perishable goods.
Companies that will perform well have extensive raw material inventories with few finished goods. As finished goods are quickly sold, the company must keep enough raw materials to produce more.
Having most of the inventory in companies can have the finished goods will experience the opposite. That can lead to decreased sales and an accumulation of the finished goods. It also means that it has more difficult to purchase fresh raw materials.
