A company's assets are owned and controlled resources that can be sold or utilized to create new capital. Purchases can be broken down into two broad classes: those used in day-to-day operations and for other purposes. A company's operating assets are those directly related to its primary revenue generation activities. Conversely, non-operating purchases are those a corporation has but don't use in its day-to-day operations. This post will teach you about the many kinds of non-operating assets, their definitions, and some concrete instances.
What Are "Non-Operating Assets"?
The term "non-operating assets" describes a corporation's resources for uses other than running the firm itself, such as making investments. These possessions are irrelevant to the company's core business and contribute nothing too regular revenue generation. Companies typically split their non-operating and operating assets on their balance sheets.
Types Of Non-Operating Assets
Non-operating assets can be broken down into a few categories and they can include:
Investments In Securities
Security investments, such as stocks and bonds, are typical non-operating assets. These securities are an option for businesses looking to diversify their holdings, generate a return on their surplus cash, or capitalize on market opportunities.
Real Estate
Moreover, real estate is a common form of non-operating assets. Businesses can benefit from real estate ownership in several ways, including having a permanent location for their activities and collecting rent. Real estate owned by a company but not used in its primary operations is an example of a non-operating asset.
Patents And Trademarks
Trademarks and patents are examples of intangible assets that fall within this category. These holdings stand in for the company's legitimate claims to its original ideas and creations, the licensing or sale of which would generate profits. Yet patents and trademarks are deemed non-operating assets if they are not used in the company's primary business activities.
Goodwill
In business, goodwill is an intangible asset that measures the worth of a company's name and brand. The term "goodwill" refers to the value an acquiring business places on an acquired company beyond what that company is worth on the open market. Unlike tangible assets like machinery or inventory, intangible assets like goodwill do not provide income for the company.
Examples Of Non-Operating Assets
Let's have a look at some samples of each category of a non-operating asset to help us better grasp their meaning:
Investments In Securities
A business may choose to invest in securities such as stocks and bonds to generate a return on surplus funds. Investments in stocks and bonds amounting to $5 million and $5 million, respectively, would be considered non-operating assets if a corporation has $10 million in cash.
Real Estate
A business can own a structure that is not essential to its operations. A vacant office building held by a firm illustrates a non-operating asset.
Trademarks And Patents
It is common for businesses to own patents and trademarks that need to be actively utilized in the firm's running. An example of a non-operating asset is a patent held by a pharmaceutical company for a medicine it is not selling.
Goodwill
Goodwill is the difference between the purchase price and the company's actual market value after an acquisition. If a business pays $100 million for a competitor but its assets are only worth $80 million, the remaining $20 million would be considered goodwill.
Acquiring And Including Non-Operating Assets In The Balance Sheet
On the balance sheet, non-operating assets are listed in a different section than operational assets. A company's assets, liabilities, and equity are summarized in the balance sheet, which is a financial statement. Current assets and noncurrent assets make up the balance sheet's assets section. Noncurrent investments are projected to continue providing value to the company for more than a year, while current assets will likely be turned into cash or used up within a year. As they are not expected to be used up or turned into money shortly, noncurrent assets are often listed under the noncurrent assets heading.
Conclusion
A company's non-operating assets are those used for things other than running the firm, such as making investments. The activities have little to do with the core business and contribute nothing to regular revenue generation. Goodwill, patents, trademarks, real estate, and securities are all examples of non-operating assets. It is common practice that these assets be listed in a different section of a company's balance sheet than its operating assets. Investors and analysts should familiarise themselves with a company's non-operating assets because they may carry a different risk profile and return potential than the company's operating assets.
