Financial modelling terms explained

Long-Term Assets

A company's long-term assets are assets that will still be owned by the company a year or more in the future. Examples include land, buildings, and machinery

What Are Long-Term Assets?

Long-term assets are items that a company expects to use for more than one year. These items can include things like land, buildings, or equipment. They are typically recorded on a company's balance sheet as part of its assets.

What Are the Components of Long-Term Assets?

Broadly, long-term assets are assets that a company expects to hold onto for more than one year. These assets can be divided into two categories: tangible and intangible.

Tangible assets are physical items that a company owns, such as land, buildings, or equipment. Intangible assets are assets that don't have a physical form, such as a company's trademarks or patents.

Both tangible and intangible assets can be further divided into two categories: current and non-current. Current assets are assets that a company expects to convert into cash within one year, such as cash in the bank or inventory. Non-current assets are assets that a company expects to hold onto for more than one year, such as long-term investments or property.

In financial modelling, it's important to track a company's long-term assets separately from its current assets. This is because the two categories of assets have different impacts on a company's financial statements.

For example, a company's long-term assets will usually be listed on its balance sheet as a part of its total assets. However, a company's current assets will usually be listed on its balance sheet as a part of its current liabilities. This is because a company's current liabilities are debts that it expects to pay off within one year.

What Is The Difference Between Long-Term Assets and Long-Term Liabilities?

The main difference between long-term assets and long-term liabilities is that the former are items on a company's balance sheet that are expected to generate future economic benefits for the company, while the latter are obligations that the company will have to pay in the future. Long-term assets can be things like property, plant, and equipment, while long-term liabilities can be things like bonds and long-term loans. Often, but not always, long-term assets are financed by long-term liabilities.

What Are the 3 Types of Long-Term Assets?

There are three types of long-term assets:

1. Property, plant, and equipment (PP&E): These are tangible assets that a company uses in the production of its goods and services. Examples of PP&E include factories, machines, and vehicles.

2. Intangible assets: These are assets that have value but are not physical in nature. Examples of intangible assets include trademarks and copyrights.

3. Investments: These are assets that a company has purchased with the intention of earning a return on that investment. Examples of investments include stocks and bonds.

What Are the 3 Ways to Acquire Long-Term Assets?

There are three ways to acquire long-term assets: purchasing them outright, taking out a loan to finance the purchase, or issuing stock to finance the purchase.

Purchasing long-term assets outright is the simplest way to acquire them, but it may not be the most cost-effective. Taking out a loan to finance the purchase of long-term assets may be more expensive in the short-term, but it can be a more cost-effective way to acquire them in the long-term. Issuing stock to finance the purchase of long-term assets can be the most expensive way to acquire them, but it also allows the company to raise capital for other purposes.

What is An Example of a Long-Term Asset?

An example of a long-term asset would be a piece of real estate that a company plans to hold onto for a number of years. The company may expect to receive regular payments in the form of rent from tenants, and these payments will help to offset the costs of owning the property. In addition, the company may expect that the value of the property will increase over time, which would provide a capital gain when it is eventually sold.

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