Asset is a function tied to accounting. This is a category on the balance sheet and is used to determine the value of a corporation. They are things that can be sold for money.
The International Financial Reporting Standards (IFRS) has this definition:
a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.
Assets are valuable because they can generate revenue or be converted into cash which is of interest to both individuals and businesses. The concept is the same since it is a listing and valuation of the resources held.
Cashflow is one way assets provide economic value. An example is a piece of real estate that is rented out. The property is the asset with the rent being the revenue generated.
An asset is found on the left hand side of the balance sheet, one of the primary financial statements. When it comes to investing along with running a business, the ratio of assets to liabilities is something that many watch. This is something that executives such as CEOs are concerned about. Wall Street analysts often build this into their models.
According to the formula on a balance sheet:
Assets = Liabilities + equity
Equity is what the owners or shareholders of the business have.
In public corporations, if there is a bankruptcy, part of the agreement that holders of the stocks have is the entitlement of the assets in liquidation, after payment on all debts, including the outstanding bonds.
Bond holders always take priority over shareholders. They are creditors having a lien against the business. Stock buyers are treated as owners, getting paid what is left over.
This is an asset that loses value over time. It can be vehicles and machinery. This is treated differently for tax purposes. These require the introduction of depreciation to the financial accounting.
Since the introduction of the Internet, digital assets have garnered attention. These can be classified as intangible although it is likely they get their own category as they grow in popularity. This is likely since the digital world is only growing.
Obviously the starting point is cryptocurrency. There are many different forms of this, with others emerging as time passes. They are:
Digital assets are projected to become popular within gaming. This field is already accustomed to in-game tokens and assets. However, they tend to be tied directly to a specific game with not value outside of it. When the game is shut off, the assets disappear.
The next generation of this, under the heading of Web 3.0, is going to allow these assets to be swapped on exchanges. This means that wallet systems operate outside the specific games. It is likely that digital assets become a commodity that ends up in multiple games.
Assets are a vital component in the generation of wealth. Whether this applies to a business or individual, growing one's asset base is vital. Income does not equate to wealth since it can be offset by spending.
Continued accumulation of assets, especially if they increase in value, is what creates wealth. Currency is not wealth since it is a tool that allows business to take place. It is through the application of assets for productive economic purposes that cashflow is generated, something that can result in asset growth.
One of the key barometers used by lenders is to look at the assets an individual or entity owns. These can often be used as collateral against the loans.
When people invest, they essentially are buying assets. Going back to wealth generation, this is why investing is such an important part of the strategy.
The same holds true for businesses. They can invest in things such as plants or new market, assets that could translate into greater cashflow.
In the world of investing, assets tend to mean securities. This can come in many forms.
Examples are:
Assets can provide a return either through yield or speculation.
Many investor purchase assets with the intention of capturing the price appreciation the market gives to it. Others opt for fixed income instruments such as bonds that provide a steady return.
Both are part of the building of an investment portfolio and determining the risk one is willing to take on is essential. In this regard, assets can vary.
