What are Fixed Assets?
Fixed assets, also known as tangible assets or investment assets, represent the portion of a company's assets that is utilized for the long-term operation of the business. It includes physical assets such as buildings, machinery, vehicles, and land, as well as intangible assets such as patents and licenses.
How do Fixed Assets impact the company?
Fixed assets play a crucial role in the financial stability and performance of a company for several reasons:
Long-term Investments : Fixed assets are long-term investments that often require significant financial resources. They impact the liquidity and long-term competitiveness of a company.
Depreciation: Fixed assets are subject to depreciation, meaning their value decreases over time. The accurate calculation of these depreciations is crucial to assess the financial health of the company.
Balance Sheet Position: Fixed assets are a significant component of a company's balance sheet. They influence the total assets and, consequently, the equity.
Creditworthiness: When a company seeks loans, fixed assets are often used as collateral. Sufficient asset coverage can enhance creditworthiness.
What types of Fixed Assets exist?
There are various types of fixed assets, including:
Real Estate: This includes buildings and land owned by the company and used for operational purposes.
Machinery and Equipment: This encompasses production machinery, office equipment, and other technical facilities.
Vehicles: All company-owned vehicles, such as vans, trucks, or company cars, fall under this category.
Intangible Assets : These include patents, trademarks, licenses, and intellectual property that hold financial value for the company. This type of fixed asset is particularly relevant for startups, as they often lack physical assets. Valuing intangible assets is often more complex, and their value may need to be discovered over time.
How are Fixed Assets evaluated and managed?
Evaluation Methods: Companies typically assess their fixed assets at acquisition cost minus accumulated depreciation. However, other methods, such as the fair value approach, are also used.
Depreciation Methods: Choosing the right depreciation method, whether straight-line, declining balance, or units of production, influences the financial results of the company.
Maintenance: Proper maintenance and care of fixed assets are crucial to maintain their value and efficiency over time.
Conclusion
Fixed assets are a significant component of a company's financial structure, comprising long-term investments that impact the performance and competitiveness of a business. Accurate valuation, depreciation, and maintenance of these assets are essential to ensure an accurate financial balance and secure the long-term stability of the company.
An experienced CFO can assist in making the right decisions related to fixed assets, thereby ensuring long-term profitability.