What are Operating Assets?
Sometimes referred to as working capital, operating assets are any assets owned by a business that are actively used in the ongoing operation of the company. Assets of this type may be tangible items such as equipment, or intangible assets such as copyrights or trademarks. As long as the asset makes a contribution to the generation of regular income to the business, it can rightly be referred to as an operating asset.
When most people think of operating assets, the first thing that comes to mind is the physical property that houses the business. This can include the office space where the business of the company is managed, as well as the plant that is used to manufacture the goods sold by the business. Machinery that is found on the plant floor and is directly involved with the creation of products also qualifies as an operating asset. Office equipment that directly aids in the generation and collection of revenue is another type of operating asset.
Along with physical property, cash on hand is recognized as an operating asset. The current balance of the accounts receivable of a business is also considered essential for the ongoing operation of the enterprise. Current assets of this type help to provide the basis for retiring any current liabilities in a timely manner, and help to keep the company on a solid financial foundation, a factor that is very important for investors.
Intangible assets are also key operating assets of most companies. Assets that are classed as intellectual property are part of this group. Any trademarks or copyrights that are held by the company have a direct impact on the ability of the business to function. In like manner, assets such as patents and brand recognition also play an important role in keeping the business going.
One of the functions of operating assets is to keep the company in a position where the retirement of short-term debt is possible, with short-term debt defined as any debt that is to be paid in full within the next twelve months. Investors often look at the total value of operating assets as one means of determining if a business has what it needs to generate revenue that can settle these short-term obligations. If a business does not have sufficient operating assets, the investor is likely to consider the company a greater risk, even if the volume of earnings is reasonable and the stock is currently performing well.
@indemnifyme - Interesting idea. I've only ever considered operating assets to be tangible items. You bring up a very valid point though.
I think it's interesting copyrights and trademarks are considered operating assets too. It makes a lot of sense because trademarks and copyrights definitely contribute to companies making money. For instance a publishing company sells copyrighted work making the copyright an operating asset.
I think an insurance company might consider their employees insurance licenses as intangible asset. Anyone who sells insurance must be licensed in accordance with state law. If your license isn't active, you can't sell anything or service any policies.
Come to think about it I think the insurance licenses are probably the most important operating asset to an insurance company. Without them the company couldn't do any business!
Post your comments