Non-current assets are those long-term investments or resources owned by a business that cannot easily be liquidated into cash within one year. This is a long-term resource that would be necessary for the proper functioning of a company for a long period. These are usually such items as property, machinery, and intangible assets. It is separated from current assets, as it is not expected to be used up or sold in one year. In this article, we will go deeper into what non-current assets are, give examples, discuss their types and how they are calculated, and explain the difference between current and non-current assets.
Non-Current Assets Examples
The company typically uses non-current assets for its operations and cannot convert them into cash quickly. These include both tangible and intangible assets that support a company’s long-term strategy. Common examples include:
- Property, Plant, and Equipment (PPE): Physical assets like land, buildings, machinery, and vehicles are used for production or business operations.
- Intangible Assets: These are non-physical assets like patents, trademarks, copyrights, and goodwill. These assets are crucial for a company’s intellectual property and branding.
- Investments: Long-term investments that are not expected to be sold within a year, such as shares in other companies or real estate held for capital appreciation.
- Long-term Receivables: The business expects to collect these amounts owed beyond one year.
- Leasehold Improvements: When a company rents space, they might improve or upgrade the property. Since they are not easily liquidated, we classify these improvements as non-current assets.
Understanding these examples will help in analyzing the company’s financial health and investment potential. Non-current assets usually form the base of any business as they enable companies to raise revenues over a long time.
Types of Non-Current Assets
Non-current assets may be classified mainly into two types tangible and intangible assets. Though both are essential for the long-term financial strategy of the company, the classification is done with regard to the physical presence of the asset, as well as its usability.
Tangible Non-Current Assets
Tangible assets are physical in nature. They are real, touchable items that a company uses to operate its business. Such assets last for some years and are very crucial for manufacturing production and operations purposes. Some of the key tangible assets are:
- Property (Land and Buildings): Real estate owned by a company, such as offices, factories, or warehouses.
- Machinery and Equipment: Physical machinery, factory tools, and vehicles used for production or other operational activities.
- Furniture and Fixtures: Office furniture and fittings support day-to-day activities in the business.
Tangible assets are often seen as a company’s backbone, especially in manufacturing or construction industries, where machinery and facilities are critical for business operations.
Intangible Non-Current Assets
Intangible assets do not have a physical presence like other tangible assets, but they still carry great value for the company. Businesses can use these as paths to build long-term value and competitive advantages in the market. The following are the primary types of intangible non-current assets:
- Patents and Trademarks: These provide protection for inventions, brand names, and logos, allowing the company to monetize intellectual property.
- Goodwill: This represents the value of a company’s brand, reputation, and customer relationships. Companies typically acquire it through mergers or acquisitions.
- Copyrights and Software: Copyrights protect original works of authorship, while software developed or purchased for business operations is classified as an intangible asset.
Though intangible, these assets are often crucial for maintaining a competitive edge, especially in the technology, media, and service industries.
How to Calculate a Company’s Assets
The total value of a company’s assets is crucial for determining its financial health and potential for growth. To calculate a company’s total assets, you need to sum up both current and non-current assets.
- List of Current Assets: The company expects to convert these assets into cash or consume them within one year. Examples include cash, accounts receivable, and inventory.
- List of Non-Current Assets: These are the assets that the company plans to use for more than a year, such as property, machinery, and intellectual property.
- Summing Total Assets: Add both current and non-current assets together. The formula is:
Total Assets = Current Assets + Non-Current Assets
For example, if a company has $100,000 in current assets and $500,000 in non-current assets, the total assets would be $600,000.
It calculates the assets, helps the businesses assess their value, and determines financial stability for the management of decisions made regarding investments and acquisitions. Investors and creditors use such information to evaluate whether a business can repay debts or generate profits over time.
Difference Between Current Asset and Non-Current Asset
The key distinction between current and non-current assets lies in their liquidity and intended use.
Key Differences
- Liquidity: Expect to convert current assets into cash or consume them within one year while holding non-current assets for longer periods (more than a year).
- Usage: Current assets are mainly for short-term operational needs, while non-current assets support long-term business strategies and growth.
- Examples: Examples of current assets include cash, inventory, and accounts receivable. Non-current assets include land, buildings, machinery, and goodwill.
- Financial Statement Classification: Both types of assets are listed on a company’s balance sheet but in different sections—current assets in the short-term section and non-current assets in the long-term section.
- Depreciation: Non-current tangible assets like machinery and buildings typically depreciate over time, reducing their value on the balance sheet.
| Aspect | Current Assets | Non-Current Assets |
|---|---|---|
| Definition | Assets that can be converted into cash or consumed within a year. | Assets that provide long-term value and are not easily liquidated within one year. |
| Liquidity | High liquidity, easily converted into cash. | Low liquidity, cannot be quickly converted into cash. |
| Examples | Cash, inventory, accounts receivable. | Property, machinery, goodwill, patents. |
| Depreciation | Depreciation is not common. | Depreciation or amortization applies to tangible and intangible assets. |
| Use in Business | Used for short-term operations and day-to-day functioning. | Used for long-term growth, production, and competitive advantage. |
| Expected Duration | Expected to be used up or converted in less than a year. | Expected to be used or held for more than a year. |
| Financial Statement | Listed under the “current assets” section on the balance sheet. | Listed under the “non-current assets” section on the balance sheet. |
Non Current Assets FAQs
What are some common examples of non-current assets?
Some common examples of non-current assets include property, machinery, long-term investments, patents, and goodwill. These assets provide long-term value to the company.
How do non-current assets affect a company’s financial health?
Non-current assets are vital for a company’s long-term stability and profitability. They help generate revenue over extended periods and contribute to overall growth, which attracts investors.
How do you calculate non-current assets?
Non-current assets are calculated by adding the value of tangible assets like property and equipment, along with intangible assets such as goodwill and patents. Do not expect to liquidate these long-term investments in less than a year.
What is the difference between current and non-current assets?
Current assets are liquid, meaning they can be converted into cash within a year, whereas non-current assets are for longer periods, usually for business expansion or long-term value.
Can we sell non-current assets quickly for cash?
Generally, non-current assets are not easy to convert into cash quickly. The company holds these assets for long-term use, and selling them often requires more time or may not be part of the company’s strategy.
