Assets - Lean Six Sigma Glossary

Assets are items of value that are owned by or owed to a company. They are generally considered to be convertible into cash and are used to generate revenue for the company. They are economic resources that can be owned and controlled to produce value.

Types of Assets

Tangible Assets

Real Estate: Land and buildings used for commercial or residential purposes.
Personal Property: Physical items such as cars, jewellery, art, etc.
Inventory: Raw materials, finished goods, etc. used in business operations.
Equipment: Machinery, tools, etc. used in production processes.

Intangible Assets

Intellectual Property: Legal rights to creations of the mind, including patents, trademarks, copyrights, etc.
Goodwill: Reputation and brand value of a company.
Financial: Investments such as stocks, bonds, and cash.

Classification of Assets:

Current Asset

Current assets are assets that are expected to be converted into cash or used up within one year. These include cash and cash equivalents, accounts receivable, inventory, and marketable securities. Current assets are important because they are used to fund the company’s day-to-day operations, such as paying employees and suppliers, and they provide liquidity to the company.

Fixed Asset

Fixed assets are assets that are expected to be used for more than one year. These include property, plant, and equipment, such as buildings, machinery, and vehicles. Fixed assets are important because they are used to generate revenue for the company, but they also require ongoing maintenance and replacement.

In addition to these categories, assets can also be further classified into different types such as below.

Financial asset, which include cash and cash equivalents, marketable securities, and investments.

Non-financial asset, which include tangible assets such as property, plant, and equipment, as well as intangible assets such as patents, trademarks, and copyrights.

Operating asset, which include assets that are used in the day-to-day operations of the company, such as inventory and accounts receivable.

Non-operating assets, which include assets that are not used in the day-to-day operations of the company, such as investments in other companies or real estate.

Importance of Understanding Asset Types

Effective Asset Allocation: Understanding the different types of assets helps in creating a balanced and diversified portfolio.
Tax Planning: Different types of assets have different tax implications, so it’s important to understand them for tax planning purposes.
Risk Management: Different types of assets carry different levels of risk, so it’s important to understand them for risk management purposes.
Financial Planning: Understanding the different types of assets helps in making informed financial decisions and achieving financial goals.

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Importance of Assets

Generating Revenue: They can be used to produce income or generate sales.
Security: They provide financial security and stability.
Wealth Creation: They can appreciate in value over time, leading to wealth creation.
Borrowing Power: They can be used as collateral to secure loans.
Estate Planning: They can be passed down to future generations as part of an estate plan.

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Sachin Naik

Passionate about improving processes and systems | Lean Six Sigma practitioner, trainer and coach for 14+ years consulting giant corporations and fortune 500 companies on Operational Excellence | Start-up enthusiast | Change Management and Design Thinking student | Love to ride and drive