Definitive Guide to Long-Term Assets (Including Examples)

By Indeed Editorial Team

Published May 21, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Long-term, or noncurrent, assets are an essential component of effective financial management for many businesses. Using and preserving these assets on a long-term basis may also generate financial advantages for organizations. Learning how to use them effectively is also key to growing a successful business. In this article, we define what these assets are, discuss their common characteristics and the potential benefits of maintaining these assets, provide examples for calculating their total value, define total assets, and make comparisons between long-term and short-term assets and between hard and intangible assets.

What are long-term assets?

Long-term assets are both the physical and intangible assets that a business owns and uses for a long period of time. These include real estate, equipment, investments, patents on products, and software. Businesses may decide to keep assets for extended periods of time if they provide financial advantages. Generally, you can find these assets on corporate balance sheets. Balance sheets often show the original financial value of assets rather than their current financial worth. To determine the current worth of such assets, you can use a formula that accounts for depreciation.

Related: What Is a Balance Sheet? FAQs, Components, and an Example

Common characteristics of non-current assets

If you want to identify a company’s long-term investments, look for assets with the following characteristics:

  • The company has continued to use and maintain the assets for longer than one fiscal year.

  • The company has used the assets to help operate and maintain its business.

  • The company has no intention of selling the assets to its clients or consumers.

Recognizing these common features may assist you in determining the type of assets a business owns. Identifying their common qualities may also assist you in knowing if a business is facing financial difficulties. For instance, if a business sells noncurrent assets, it may indicate that it needs more revenue in the short term to satisfy operational demands.

Examples for calculating total long-term asset value

If you're interested in determining the value of a company’s long-term assets, you can use the following two examples to guide your calculations:

Example 1

Sprinting Shipping Company, a huge worldwide delivery business, is interested in determining the value of its long-term assets. To do this, you would start by examining its balance sheet and extracting the relevant figures, which are:

  • Long-term investments and receivables: $38.44 billion

  • Long-term property and equipment: $235.27 billion

  • Other noncurrent assets: $8.9 billion

To find the total long-term asset value, add these values together:

$38.44 billion + $235.27 billion + $8.9 billion = $282.61 billion

This calculation shows that Sprinting Shipping Company has a total long-term asset value of $282.61 billion.

Example 2

Blue Light Games, a mid-sized family game developer, is interested in determining the worth of its noncurrent assets. To do this, you would begin by evaluating the balance sheet to identify the data necessary for this calculation. The figures are:

  • Long-term investments and receivables: $18.97 million

  • Long-term property and equipment: $147.12 million

  • Other noncurrent assets: $6.84 million

To find the total long-term asset value, add these values together:

$18.97 million + $147.12 million + $6.84 million = $172.93 million

This calculation shows that Blue Light Games has a total long-term asset value of $172.93 million.

Benefits of having noncurrent assets

Retaining valuable noncurrent assets can provide companies with many benefits, including:

Decreased costs

Long-term assets may have functional qualities that can help businesses save money. Physical assets, such as real estate or equipment, may help businesses generate profits by allowing them to avoid external expenditures more readily. For instance, if an organization has its own land or equipment, it may be able to avoid renting business space or equipment from other firms.

Long-term intangible assets, such as software or technology, may also assist businesses in cost reduction. For instance, if a business uses its own software or technology, it's unlikely to require external solutions. Both asset classes may eventually assist businesses in lowering their operating expenses.

Related: What Is Equity in a Company? (With Definition and Types)

Increased profits

If a business experiences reduced expenditure, it may also see a rise in earnings. Long-term physical assets, such as real estate or equipment, may help businesses generate profits by streamlining processes and increasing efficiency. This increased capacity to handle everyday activities more effectively and efficiently may result in higher productivity.

Long-term intangible assets, such as investments or patents, may help businesses increase revenue. Strategically allocating funds and establishing ownership rights may result in investment returns or profits from patented or copyrighted goods. Both asset classes have the potential to help businesses enhance their overall earnings over time.

Increased growth

Lower corporate expenses and more earnings may lead to increased growth. Financial expansion on a broad scale may enable businesses to extend their brands, reach, or goods and services. For instance, a business that has reduced its expenses and increased its profits through its use of noncurrent assets may expand by investing in other assets or boosting budgets to assist in extending its brand and products. This capacity for growth and expansion may result in a significant rise in profits.

Depending on the number of assets a business keeps throughout time, the time necessary to fulfill its growth objectives may vary. For instance, a business that owns just a few of these assets may experience slower growth than a business that owns many of these assets. Other variables, such as firm size or industry, may also contribute to the enhanced growth advantages that a business experiences.

Noncurrent assets and depreciation

Over time, noncurrent assets may depreciate in relation to the economy and inflation levels or experience a general loss of value. For example, if a company has equipment and vehicle assets, their value may depreciate as new equipment technology and vehicle models emerge. To show the depreciation of assets, you may use a variety of different accounting calculation formulas, which include:

  • Double-declining balance method

  • Units of production method

  • Straight-line depreciation method

The method you choose to use may depend on the company's preference and individual needs.

What are total assets?

Total assets are a representation of the value of all a company owns after deducting all liabilities. Any item that a person or organization possesses, such as a vehicle or stock, is an asset. Individuals or organizations acquire an asset with the expectation that its value may improve in the future. Businesses may buy assets, such as new equipment or real estate, with the goal of increasing their cash flow.

A liability is an obligation, which may be money or service, that a company owes someone else. This might include rent, taxes, and debt. Including liabilities in the calculation results in the most accurate valuation of total assets. You can determine a company’s total assets by subtracting the value of liabilities from the value of assets.

Related: What Does a Financial Adviser Do? (And How To Become One)

Long-term vs. short-term physical assets

Some people classify physical, or hard, assets as long-term or short-term. You can also refer to long-term physical assets as fixed assets since they preserve their worth and utility over time and typically contribute to an organization's production of services or commodities. These assets generally have a useful life of more than a year.

Fixed assets may depreciate steadily over time or rise in value, depending on the item. For example, real estate often increases in value over time, but equipment typically depreciates over a long period of time. Short-term assets, often known as current assets, such as inventory or raw materials, are generally consumed or sold much more quickly than fixed assets.

Physical assets vs. intangible assets

Intangible assets, which you can also refer to as soft assets, are nonphysical items that have monetary worth. While intangible assets are often prone to value swings, physical assets typically preserve their worth over time. Due to the scarcity of hard assets, they are often inherently valuable independent of economic conditions, which is why many businesses and investors use them to hedge against losses and inflation.

You can often see hard assets listed as property, plant, and equipment on financial statements. A company cannot sell its intangible assets if it goes out of business, so they don’t usually appear on the balance sheet. Despite this, they continue to provide value to the business and may be helpful in the future. Often, the value these assets bring is in the form of future credibility.

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