Analysing Financial Statements – Long Term Assets ( 3 of 6)

Hi Investors

In our third article, we focus on long term assets (non-current assets). The long term asset category of a classified balance sheet appears immediately after the current assets.

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Non-current assets are assets that are not turned into cash easily, are expected to be turned into cash within a year and/or have a lifespan of more than a year.

Classifications Of Assets On The Balance Sheet

Current Assets

Read more in our previous article .

Tangible Assets

1. Property , Plant and equipment

2. Investment property , such as real estate held for investment purpose

Intangible Assets

Assets that we cannot physically touch which include patents, copyright, trademarks, franchises, brand names. Often the market value of an intangible asset is far greater than the market value of a company’s tangible assets such as its buildings and equipment.

Long Term Assets Image2

Other Assests

Financial Assets

  • This excludes investments accounted for using the equity method, accounts receivables, and cash and cash equivalent.

Biological Assets

  • These are living plants or animals. Bearer biological assets are plants or animals which bear agricultural produce for harvest, such as apple trees grown to produce apples and sheep raised to produce wool.

What is important about them

While these assets are not physical in nature, they are often the resources that can make or break a company – the value of a brand name, for instance, should not be underestimated.

Example: A company that has a durable competitive advantage doesn’t need to constantly upgrade it plant and equipment to stay competitive. This includes if they are able to finance any new plants and equipment, it gives them a competitive advantage in the business.

Interesting fact about long-term investments is a company can have a valuable asset that is reflected in the books at a valuation considerably below the market price.

Example reflecting its importance, assume Company ABC owns 25% of the equity of Company XYZ. If Company XYZ posts a net income of $1 million, then Company ABC records investment income of $250,000 on its own income statement.

Please look forward to our next article where we cover liabilities section of the balance sheet.

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