What are Total Assets?
Total assets are everything that a business or an individual owns. 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 typically can be converted from a physical item into cash. The ease in which an asset can be turned into money is known as liquidity. Assets can take various forms, ranging 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 in which they can be exchanged for cash. The most liquid of assets can be found toward the top of a financial statement. These assets might include cash or short-term investments such as equities and accounts receivable, which are funds owed to a business.
Below the most liquid of investments on a financial statement, current assets are outlined. Included among current assets is inventory. These are items that expected to be sold and to 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 into cash and include things such as real estate, trucks and other machines.
Intangible items also contribute to total assets. For instance, patents, trademarks and licenses are all included in the sum of total assets. Investments, such as stocks and bonds, are also grouped among intangible assets. A company's website could be treated either as a tangible or intangible asset, depending on the region in which a 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 can be incomplete. This is because the market value of an asset, such as real estate, might appreciate or depreciate in value over a period of time. That change in value will not be reflected in the purchase value price, which is the price listed on the balance sheet. As a result, investors might not always value a company properly and may be too positive or negative on a stock unknowingly. The value recorded on a financial statement is the purchase value, so investors might not be able to recognize the fact that a piece of land has appreciated in value over time, for example.
The other part of total assets on a company's balance sheet are liabilities. In order for financial analysts to determine an entity's net asset value, liabilities must be subtracted from total assets. The result is known as shareholder's equity.
If a company's total assets include things like cash, then the number must be constantly changing.
It sounds like a lot of work to me, to keep track of all of the little details like that. Thank goodness for the people who are cut out for work like that! Otherwise, who would run all of the business out there. The world wouldn't function without businesses!
One easy way to calculate how well a company's assets are being used to make money is to figure out something called the return on total assets. This is the ratio between a company's earnings and it's total assets, and if you figure this out, it can give you a good idea of how effectively a company is using their assets.
When you apply for loans or federal aid from the government to attend college, your family's total assets, not just your income, is an important number for determining how much help they can give you.
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