What Is a Nonfinancial Asset?

    A nonfinancial asset is an asset that derives its value from its physical traits. Examples include real estate and vehicles. It also includes all intellectual property , such as patents and trademarks. The classification of possessions as nonfinancial assets is important to businesses as these items appear on a company's balance sheet and determine a multitude of factors, such as a company's market value and debt profile.

    Key Takeaways

    • A nonfinancial asset is determined by the value of its physical traits and includes items such as real estate and factory equipment.
    • Intellectual property, such as patents, are also considered nonfinancial assets.
    • Nonfinancial assets play an important role in determining a company's market value and ability to borrow.
    • Financial assets, such as stocks, are the opposite of nonfinancial assets. They are easier to value and more liquid.

    Understanding a Nonfinancial Asset

    On a company's balance sheet, nonfinancial assets stand in contrast to financial assets . Financial assets are based on a contractual claim rather than a physical net worth. Financial assets include stocks, bonds, and bank deposits and are generally easier to sell than nonfinancial assets.

    The value of a financial asset can be based on the value of an underlying nonfinancial asset. For example, the value of a futures contract is based on the value of the commodities controlled by that contract. Commodities are tangible objects with inherent value, such as coffee or soybeans, while futures contracts, which do not have an inherent physical value, are an example of a financial asset.

    Nonfinancial Assets vs. Financial Assets

    Nonfinancial and financial assets differ based on how the assets are bought and sold. Many financial assets, such as stocks and bonds, will trade on exchanges and can be bought and sold on any business day that the exchange is open. It is easy to get the current market price to buy or sell these assets. As long as the market is liquid , there will be a buyer for every seller and vice versa.

    On the other hand, a nonfinancial asset, such as a piece of equipment or a vehicle, can be challenging to sell because there is not an active market of buyers and sellers. The pricing of the nonfinancial item may be foggy as there is no market standard. Instead, many nonfinancial assets are sold when the seller finds a potential buyer and negotiates a sale price. The time it takes to find a buyer, make the sale, and distribute the physical asset, make nonfinancial assets illiquid .

    Nonfinancial Assets as Collateral

    Both financial and nonfinancial assets may be used as collateral to back secured debt , standing in contrast to unsecured debt , which is only backed by the borrower's ability to pay. One factor that makes a form of collateral more attractive to the lender is the ability to quickly sell the asset if the borrower fails to make principal or interest payments. A financial asset that trades on an exchange, like a stock or bond, is easier to sell than a nonfinancial asset, so a financial asset is more attractive to a lender as collateral.

    Assume, for example, that XYZ manufacturing needs a $100,000 line of credit to operate the business, and they put up $60,000 in investment securities and a $40,000 piece of equipment as collateral for the loan. If XYZ does not make principal and interest payments on the loan and defaults, the lender can sell the $60,000 in financial assets quickly to cover the loss. Finding a buyer for the equipment, however, may take longer, so the nonfinancial asset is less attractive as collateral.

    What is non-financial?
    Definition of nonfinancial : not of or relating to finance or financiers : not financial rarely argued about nonfinancial matters For the first time in eight years, the balance sheets of nonfinancial corporations will end the year with more equity relative to debt than they had when the year started.— more
    Do ear mites smell in dogs?
    Mite infestations can cause a foul odor in your dog's ears. You may also see a buildup of dark debris in your dog's ears, similar to coffee grounds. As you examine your dog's ears, look for redness in the ear canal as well as the outer ear, as this is another sign of ear problems in dogs. more
    What was Elsa's last words on 1883?
    Elsa Dutton and James Dutton seemingly sat for hours beneath the tree in 1883 episode 10. It's clear to both of them that Elsa will die under that tree. When she finally starts to go, she has a few final words for her father after seeing a bird. “You birds sure are smart,” Elsa says to the bird. more
    Why did the Mongols drink blood?
    While everyone likes to talk about how scary the Spartans or Romans could be, it was the Mongols who pioneered new warfare tactics, used them to win battle after battle, and survived on a diet of horse blood and liquor to ride across whatever terrain they needed to in order to murder you. more
    Do cows like being touched?
    Cows are Affectionate and Forgiving Cows love to be petted, stroked, and scratched behind the ears. They are very loving and welcome interactions with kind people. more
    Why do Bulldogs choke?
    Brachycephalic Obstructive Airway Syndrome These dogs are born with a soft palate that obstructs airflow into their lungs. Your bulldog will have difficulty in breathing and will retch or gag especially while swallowing. more
    What was Hitler's Myers-Briggs?
    Which personality type was Adolf Hitler? Adolf Hitler was an unhealthy INFJ personality type. He tended to feel resentful of other people and this could have been the driving force behind some of his actions. more
    Are there female stormtroopers?
    There are a lot of women in the stormtrooper ranks in Star Wars Battlefront II. In the Force Awakens there are a few women playing stormtroopers throughout the film as can be seen in some of the behind the scenes material. more
    Where is Jack's Bar in Virgin River?
    The exterior of Jack's Bar, which serves as the town's unofficial meeting spot, is reportedly Watershed Grill in Brackendale, located north of Vancouver on the Squamish River. All interior scenes, however, are shot at a local studio. more
    How do Muslims purify after periods?
    Sunnah of Ghusl
    1. Washing both the hands up to the wrists.
    2. Wash the private parts and remove dirt or filth from the body (using your left hand).
    3. Perform wudu (ablution).
    4. Pour water over the head three times, and rub the hair so that the water reaches the roots of the hair.
    more
    How did pirates get their names?
    When Bierbauer didn't sign back with Philadelphia as expected, however, Pittsburgh drew criticism from the Athletics and American Association officials who called those actions “piratical.” Accused of plundering players, the Alleghenys then became known informally as “pirates.” Pittsburgh officially nicknamed itself more

    Source: www.investopedia.com

    You may be interested in...

    Is it humane to freeze a fish?

    Is flow built on Ethereum?

    Can vitamins raise serotonin levels?

    How do you greet an elder in Islam?

    Why is food prices going up?

    Is Feeding America in all 50 states?

    Can you become a priest if you have a child?

    How can you tell if elderberry is edible?

    Is life meant to be enjoyed?

    How do you start a dog tracking deer?

    What is the English meaning of Joggo?

    Why does my 6 month old puppy bite me?

    Why does arugula turn red?

    What is SAP ADT?

    How much money the world has?

    About Privacy Contact
    ©2022 REPOKIT