Assets whose value is primarily derived from physical assets rather than contractual commitments or financial markets.
Prior to becoming a Founder for Curiocity, Hassan worked for Houlihan Lokey as an Investment Banking Analyst focusing on sellside and buyside M&A , restructurings, financings and strategic advisory engagements across industry groups.
Hassan holds a BS from the University of Pennsylvania in Economics.
Reviewed By: David Bickerton
Previously a Portfolio Manager for MDH Investment Management, David has been with the firm for nearly a decade, serving as President since 2015. He has extensive experience in wealth management, investments and portfolio management.
David holds a BS from Miami University in Finance.
Last Updated: January 7, 2024 In This ArticleNon-financial assets are those whose value is primarily derived from physical assets rather than contractual commitments or financial markets . Tangible assets (plant, machinery, equipment) and intangible assets (patents and trademarks) fall under this classification.
Businesses consider this classification because these assets are included on a company's balance sheet , and their designation as non-financial influences elements like market value and debt profile.
Unlike financial assets, non-financial assets are not actively traded on financial markets. The price of these assets does not adhere to market standards, and there is no established market for buyers or sellers.
A non-financial asset is sold once a potential buyer is found and a reasonable purchase price is agreed upon. In contrast, financial assets like stocks and bonds can be traded through established markets anytime during market hours.
An asset refers to a valuable resource or object that a firm possesses. Cash, stocks, equipment, natural land, and intellectual property are all examples of assets. Every company will have distinctive assets; creating, running, managing, and profitably selling them is critical.
Non-financial assets are significant to businesses and can be used as collateral to secure borrowing from financial institutions. Financial analysts consider non-financial assets when assessing the company's long-term viability.
The following are the key differences between financial and non-financial assets.
| Properties | Financial Asset | Non-Financial Asset |
|---|---|---|
| Assets | Include economic assets like Stocks, Bonds, and Securities. | Includes both Tangible and Intangible assets. |
| Liquidity | Highly liquid | Less likely to quickly convert into cash |
| Valuation | Valuation is based on the investor’s demand and supply. | Book value is used for accounting purposes, which is the asset’s original cost. Market value is when the asset is sold off or disposed off before the completion of the useful life. |
| Trading time | Financial assets can be traded anytime when the market is open | Challenging to trade anytime as it can be traded only in active markets. |
| Market Value | Change in value through volatility as well as external factors that affect the stock price. | Tangible assets are depreciable, whereas intangible assets are revalued based on the firm's current condition. |
The following are the types of non-financial assets. They are classified based on the nature of the purchase.
1. Produced Asset
These are assets that are created through a production process or human effort. They involve using resources and labor to produce a tangible or intangible asset.
Examples of produced assets include
A. Buildings and structures: Constructed houses, offices, factories, and infrastructure.
B. Machinery and equipment: Manufactured tools, machinery, vehicles, and other productive assets.
C. Inventories: Goods produced or purchased for sale or use in production.
D. Leasehold improvements: Enhancements made to leased property by the lessee.
Produced assets result from the production or construction activity and don't have to be capitalized until the end of the useful. Some assets are capitalized in one year or less.
2. Non-Produced Asset
These are sources of wealth that are produced naturally or without the aid of human work. They are typically purchased or found, not manufactured.
Examples of non-produced assets are
A. Land: Natural land that sustains resources, including forests, bodies of water, and mineral deposits.
B. Minerals and fossil fuels: Coal and oil are examples of natural resources. Examples of biodiversity include ecosystems, natural habitats, and the range of species.
C. Ecosystems: Ecosystems provide various services like clean air, water purification, and pollination, which are not produced by humans but have economic value.
A non-financial asset that holds its value based on the original purchase cost and is not readily convertible to cash can be used as collateral. The collateral form of non-financial assets includes tangible and intangible assets.
Non-financial assets may be accepted as collateral depending on several variables, including the asset's kind, value, marketability, and lending institution rules.
The following is an example of a non-financial asset used as collateral:
Lenders might differ significantly in their acceptance and valuations for non-financial items used as collateral.
The terms and circumstances related to utilizing non-financial assets as collateral may also vary based on the jurisdiction and the regulations of the particular lender.
The sale of a non-financial asset occurs when its ownership is transferred. Non-financial assets hold value in ways other than direct monetary translation. The following actions are routinely taken when selling a non-financial asset:
Each of these steps is essential in ensuring a smooth and successful sale of a non-financial asset.
