1.0 Introduction
By definition, an asset is a resource which is owned or controlled by an individual, business entity, or government with the expectation that is to generate future cash flows or returns(Allee, 2008). Some cash flows are resulted directly from existing economic resources such as accounts receivables and investment properties. Other cash flows are generated from using several resources in combinations to produce goods or services to customers such as PPE. Even though these cash flows cannot be identified via individual economic resources, users of financial reports should be aware of the nature and the amount of the resources available within the respective business entity. According to the text book, there are mainly six types of assets, including current, non-current, physical, intangible, operation and non-operation assets (Michaud& Michaud, 2008). In this short essay, each type of assets will be defined clearly. Besides, the reason why security is important in managing the above-mentioned assets will also be discussed in details.
2.0 Classification of Assets
Generally speaking, an asset can only be recognized when any future economic benefit is associated with the item that will flow to the entity. Besides, the item has a cost or value that can be measured with reliability. In other words, some items might seem to be complied with the definition of an asset but significant judgement is required to prove that such items can be recognized as assets. Thus, classification of assets is essential and meaningful in this process. Assents can be classified based on their convertibility, physical existence and usage. Convertibility is a characteristic to classify assets based on how easy the items can be converted into cash. Physical existence can reflect whether the assents are tangibles or intangibles. Usage is classifying assets based on their business operations or purposes.
2.1 Convertibility - Current Assets VS. Fixed Assets)
If assets are classified based on their convertibility, they can be classified as current assets and fixed assets. Current assets are assets that can be easily converted into cash or cash equivalents (Sunjoko&Arilyn, 2016). Cash, short-term deposits, inventories (stocks), accounts receivables, marketable securities, office supplies, and other cash equivalents are typical examples of current assets. Effective working capital management is about keeping the investment in current assets under control. Stocks, for instance, are highly critical for business entities. Businesses should seek the optimum level of stocking. It is not just about maintaining a minimum level because running out of stock could be disastrous. It leads to a tremendous amount of profit loss. Business entities often hold a lot of stocks because the stock may be imported from a far-away country or it could be much cheaper if bought in bulk or the price of the stock may go up in the near future. Businesses should be cautious about the level of stock-holding as sometimes stock levels should be kept low due to high cost.
Non-current or fixed assets, on the other hand, are assets that cannot be easily converted into cash or equivalents. Land, building, machinery, equipment, patents, trademarks, logos, etc, are examples of fixed assets. Fixed assets are usually low-term assets. It tends to have a useful life more than one year. In addition, fixed or non-current assets are listed on the balance sheet as property, plant and equipment (PPE). As compared with current assets, fixed assets will experience depreciation. In other words, it expenses or spreads out the cost over several years. Current assents, on the other hand, will not depreciate because they have rather short life time.
2.2 Physical Existence - Tangible Vs Intangible Assets
Tangible assets are assets that have a finite monetary value and usually in a physical form which people can see, touch or feel(Allee, 2008). Land, building, cash, equipment, marketable securities, stock, etc, are examples of tangible assets. Tangible assets usually account for the majority of a company’s total assets. They can be easily recorded and reflected on the balance sheet and listed by liquidity. Intangible assets, on the opposite, are assets without physical existence, such as patents, copyrights, trademarks, trade secretes, permits, organizational culture, etc. The “Nike” trademark, for instance, a good example of the intangible asset of Nike, one of the largest global athletic footwear producers. The Nike Brand itself is valued at about $30 billion in the Fortune 500 list(Wisbey, 2010).
2.3 Usage - Operating Assets Vs Non-Operating Assets
Operating assets are referring to assets that are required or associated with the daily operation in business(Beneda, 2004). So to speak, operating assets can generate economic benefits from the major business operations or activities of a company. Examples of operating assets may include cash, machinery, building, patents, etc. Non-operating assets, as the name implies, will still generate revenue even if they are not required for the daily business operations. Examples may include vacant land, marketable securities, short-term investment, interest income from a fixed deposit, etc. Determining which assets are operating assets and which are non-operating assets are highly critical in understanding the contribution of each asset and determining the proportion of revenue generated from a company’s core business activity.
3.0 Security in Assets Management
Without the ability to secure all the above-mentioned types of assets, a company’s core competencies such as technologies, logos, business secrets, etc, may be potentially threatened. It is very much important especially for business owners to develop a strategy to protect their assets wisely and outperform the rest competitors.
First, both tangible and intangible assets, if classified based on the physical existence, can be protected via employment agreements. The agreements could possibly stipulate that all assets are company-owned. Any unauthorized disclosure of confidential information such as customer list, pricing formula, supplier list, and other valuable data are prohibited. Employees are not authorized to leak the above-mentioned information to a third party. Tesla, for instance, a world leading electric vehicle(EV) producer, is now highly concerned about the leakage of company information(Kolodny, 2019). Elon Musk in his letter to all Tesla employees points out that one former employee inadvertently uploaded Tesla’s intellectual property to his personal iCloud and thus leaked the precious information to the company’s potential competitors. As such, Tesla decides to refine its employment contract and make all employees legally responsible for the leakage of information.
Moreover, business entities should also seek for legal filings of patents, copyrights and trademarks in order to secure the assets. Like the aforementioned, Nike’s trademark is an important intangible asset of the company. It is thus critical for the company to fight against counterfeiting. However, previously Nike can simply file a lawsuit against shoemakers who produce counterfeiting products. Lately the company discovers that there are more “sophisticated counterfeiting”(Bloomberg Law, 2019). For instances, an importer can ship the products separately from the trademark and then attach the logo of “Nike” after entering a respective market. The major problem is that the shipping containers are often labeled as holdings of other types of goods but in fact they may carry the knock-off shoes of Nike. In this sense, traditional patent or copy right laws may not be sufficient in securing Nike’s intangible assets. Design Patent regulation could thus be a viable solution for Nike. The court of a respect market can take legal action to protect the design patent of a brand if the counterfeiting products are smuggled in under the holding of different goods. For instance, Nike has sued an importer whose containers are carrying knock-off shoes of Nike but under the name of ceramics. As such, it can be observed that no only the trademark or logo of a company should be protected, but also its design and other intellectual works should be protected as well.
Last, companies can hire the services of a private data center to protect their important data. In the digital era, it is often challenging for companies to secure their data and virtual assets. Especially small and medium businesses (SMBs) are extremely vulnerable to identity theft and data thieves. Very often, customer’s data might be stored after using a company’s services. But if customers discover that their data are poorly managed or leaked to authorized personnel, they may start to think twice about doing business with or consuming service of the respective company. In other words, data, a form of intangible asset, should be secured very carefully. McDonald, a very reputable quick-service restaurant (QSR) in the world, is hiring the services from Affiliated Computer Services (ACS), a private data center service provider, to protect its customer information(Data Center Dynamics, 2010). As a matter of fact, customer’s buying behaviors can be registered automatically on each visit to McDonald. It may reveal their tastes and preferences based what kinds of food they are frequently ordering. Such data can be considered as a kind of business secret that McDonald is less wiling to leak to its competitors. Private Data Center can help McDonald install surveillance camera to watch over the important data. Card key access is also required for physical entry to access McDonald’s data center.
4.0 Conclusion
In Conclusion, there are many different kinds of assets that are owned or controlled by individuals, businesses or governments. At the business level, companies should be very clear about how many assets they actually have. Assets can be generally classified based on their convertibility, physical existence and usage. Moreover, security is also highly important in managing assets. Like the aforementioned, assets can effectively generate revenue for a business entity. Without proper security measures, a company may be easily outperformed by competitors who can protect assets very well. In order to enhance the assets security, a company is advised to propose an employment contract in a way to deter employees from leaking company’s information or appropriating company’s tangible assets. Besides, companies are also advisable to look for legal filing of patents and copyrights. In addition, companies can hire services from private data centers to protect its digital data and assets.
Reference
Allee, V. (2008). Value network analysis and value conversion of tangible and intangible assets. Journal of intellectual capital.
Bloomberg Law (2019). Nike, 3M Seek New Weapon in Battle Against Counterfeit Goods. BOF. Accessed on April 4, 2020. [Online]:https://news.bloomberglaw.com/ip-law/nike
-3m-seek-new-weapon-in-battle-to-thwart-counterfeit-goods
Beneda, N. L. (2004). Valuing operating assets in place and computing economic value added. The CPA Journal, 74(11), 56.
Data Center Dynamics (2010). McDonalds extends data center management contract with ACS. Accessed on April 4, 2020. [Online]:https://www.datacenterdynamics.com/en/news
/mcdonalds-extends-data-center-management-contract-with-acs/
Kolodny, L. (2019). Here’s the email Tesla sent employees telling them to stop leaking info. CNBC.Accessed on April 4, 2020. [Online]: https://www.cnbc.com/2019/05/03/
tesla-email-warns-employees-stop-leaking.html
Michaud, R. O., & Michaud, R. O. (2008). Efficient asset management: a practical guide to stock portfolio optimization and asset allocation. Oxford University Press.
Sunjoko, M. I., & Arilyn, E. J. (2016). Effects of inventory turnover, total asset turnover, fixed asset turnover, current ratio and average collection period on profitability. Jurnal Bisnis dan Akuntansi, 18(1), 79-83.
Wisbey, D. (2010). Counterfeit Nike Sneakers. Journal of Forensic Identification, 60(3), 337.