What types of assets help your cashflow management?
An asset is a company asset and serves the company's success. Here we show you what types of assets there are, what significance they have for companies and how they are managed.
Asset: Meaning in business
An asset is an economic resource that has a certain value for a company and will bring it financial success in the future. It can be a tangible asset, for example a production machine with which the company manufactures its products, or a financial asset with which the company generates a return.
An asset always has the goal of generating cash flow, reducing costs or increasing efficiency at a future date so that a company maximises its profit.
Assets vs. liabilities
The assets are offset by the liabilities. These represent financial obligations for a company and counteract profit. Liabilities are, for example:
- Bank loans
- Mortgages
- Accounts payables
- Tax payments
Different types of assets and examples
There are different types of assets, which can be divided into fixed, current, intangible and financial assets.
Fixed assets
A fixed asset has a long maturity (greater than one year). A company's fixed assets include, for example, buildings, production machinery and vehicles.
Items that wear out over time and only have a certain lifespan are depreciated as part of depreciations, which describes the loss in value.
Current assets
Current assets include all assets that have a short maturity (less than one year). They are usually quickly converted into cash or consumed. Current assets include:
- Cash
- Positive bank account balances
- Cheques
- Accounts receivable
- Inventory
Intangible assets
Intangible assets are assets that exist only on paper. They include:
- Patents
- Trademark rights
- Copyrights
Financial assets
The financial assets in a company include all financial investments and other securities, for example:
- Shares and funds
- Bonds
- Financial interests in other companies
Why is assessment management important for a company?
Asset management is an important part of financial management in a company. It helps to remain cost-efficient and to manage investments in a way that maximises profit and allows the company to grow continuously. The tasks of asset management in a company include monitoring all existing assets and planning investments in new assets. Existing assets are regularly checked to see whether they actually create added value for the company. If this is not the case, they represent liabilities that reduce the company's profit.
The profitability of assets must therefore be regularly reassessed to ensure that they contribute to growth and do not hinder it. Closely related to this is investment planning, which assesses the long-term success an investment will bring to the company.
Asset lifecycle
An asset goes through various phases. This is called the asset lifecycle. This varies in length depending on the type of asset. The lifecycle can be divided into the following phases:
- Asset planning
- Acquisition
- Management
- Disposal
Asset planning
Asset planning is the process of assessing what assets are needed to develop the business in a cost-effective manner and to increase profit and profitability. The requirements differ from company to company. For example, a manufacturing company has more fixed assets than a software service provider.
During the planning process, existing assets are also considered and checked to see if they need to be adapted to ensure the success of the company. Furthermore, it must be planned when which assets are to be acquired or sold.
Acquisition
After assessing which assets you need and when, you assess how you want to acquire them. For some assets, this includes assessing whether to acquire them from outside or produce them yourself.
During the acquisition phase, one plans the budget that is necessary to acquire an asset and in which chronological order the acquisition should take place, for example if several assets are to be acquired.
Management
Once you have acquired an asset, you have to manage it. If the asset is a building or a machine, it must be regularly maintained or serviced in order to keep its life span as long as possible.
Financial assets must be reviewed regularly to determine whether they are generating the desired return. If necessary, the portfolio must be restructured and other assets acquired.
Disposal of an asset
When the asset has reached the end of its lifecycle, it is removed from the company. Depending on the type of asset, this happens in different ways. A machine can either be sold on the second-hand market if it is still functional or it has to be scrapped.
Financial assets or other fixed assets such as buildings are sold at a profit or loss. As soon as an asset is removed from the company, this is recorded so that it no longer appears in the books.
