Non-current assets: What is it? | Hapinary Dictionary
Hapinary Dictionary
September 11, 2024
Every business needs to use non-current assets—long-term investments—to operate the business structure itself. In the beginning, companies require funds to acquire supplies, destined for the production of their product or to provide a service.
Some examples of non-current assets include real estate, patents, equipment, trademarks, goodwill, and unamortized bond issuance costs. Just like with current assets, understanding this element allows us to grasp the profitability level of a company based on the management of its assets, ultimately refining our investor skills.
Let’s define it!
We can define a non-current asset as any asset (tangible or intangible) within a company that is so essential to it that it cannot be sold due to its long duration. For this reason, it is also referred to as a fixed asset.
It’s important to remember that when we talk about the term "current," we refer to assets that can circulate, that move, that are subject to transactions. A non-current asset is the opposite; it’s fixed in that sense, which is why they are also known as non-current or long-term assets.
So, we have the following definition of a non-current asset:
These are low-liquidity assets, investments that every company makes for the long term and are not planned to be converted into cash within a period of less than one year.
There are two types of non-current assets: tangible and intangible. Here are examples of each.
These are physical assets, such as real estate, properties, and equipment within a company. This type of asset is essential because it allows the production, assembly, or processing of products for later sale.
These are assets without a physical presence. Some examples of intangible non-current assets include patents, copyrights, intellectual property rights, software applications, a bond amortization fund, among others.
Over time, both material wear and tear and inflation will impact the value of these resources, and some of them will experience depreciation. However, we must understand that their essence provides great value to the company.
The company must plan and distribute the cost of non-current assets over the years they will be used. This is different from assigning the entire cost to the company’s accounting records.
For example, in the case of owning a non-current asset like a piece of real estate, the total cost of that property, say, the purchase of an office to provide investment advice. The purchase of that office should be distributed over the entire period it will be used.
The most important difference between current and non-current assets is their liquidity level, which indicates how easily an asset can be converted into cash.
Thus, a current asset has the ability to be transformed into cash within a period of less than one year, while a non-current asset does not have that ability; it has low liquidity.
Now that you know what a non-current asset is, its characteristics, and its types, let’s put your knowledge into practice: identify what type of asset it is.
Example 1: Imagine a company planning to launch a new product on the market: a new line of sportswear, and therefore it’s planning to purchase a defunct brand. What type of asset is that purchase?
Example 2: A company that has been in the market for years decides to buy Apple shares but is thinking of liquidating them within about 6 months. What type of asset is it? Find the answer at the end of the article.
In summary, knowing whether a company’s assets are current or non-current helps us better analyze whether it’s advisable to invest in it. The importance of knowing this helps us understand where to invest money.
A non-current asset can represent an advantage for the company, as it allows it to increase its production capacity, expand its business, or launch a new product. For us as investors, it also holds another meaning.
Knowing a company’s non-current assets provides tools to calculate profitability.
For example, if a company mostly has assets with a low level of liquidity (non-current assets) in relatively long terms, it may be a company that will have difficulty meeting its short-term obligations, such as paying dividends.
Knowing and identifying current and non-current assets of any company by investigating its financial balance sheet allows us to:
In the end, it provides us with data to trust our money in a particular company, aiming to grow our investment with better interest rates.
Because investing is about achieving financial freedom. But investing is not just leaving your money long-term in a traditional bank or investing in a family member’s business—earning minimal interest—investing goes much further, and it’s also about buying and selling shares.
Invest, enter the stock market:
10 reasons to invest in the stock market
Now the question is: How to invest if I’m in Latin America? There are platforms like Hapi that focus on providing customer service in these countries, making the investment experience safe and fast. Start investing without paying commissions and without a minimum amount.
We hope this weekly post has been helpful in expanding your financial vocabulary. Do you have any questions about non-current assets? Is there another financial term you want us to define? We’d love to add it to our Hapinary.
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