Whether you are applying for a loan, starting a business, or simply creating a budget, you probably ran across the term total available assets. What’s considered an asset? How do I know if I should include it as an available asset? I’m about to give you a crash course in understanding total available assets.
What exactly is meant by total available assets? Total available assets are simply the sum total of all assets (which are anything of value that can be converted into cash) that have no restriction of use and can be readily sold if needed by the owner.
What is Considered an Asset?
As stated above, an asset is anything of value that can be converted to cash. Assets are owned by various entities such as individuals, small businesses, large companies, and even governments. Some of these things are very apparent because you can physically hold them or see them whereas other examples may not tangible and require extra consideration when listing out all of your assets.
There are many different types of assets:
- Cash – Probably the easiest asset to grasp. This can be cash in a checking account for individuals or petty cash and corporate checking for companies as well
- Liquid Assets – Assets that can be easily and quickly converted to cash such as stocks, inventory or personal property
- Non-liquid (or Fixed) Assets – Assets that may require a long period of time to sell or convert to cash such as real estate.
- Tangible Assets – Assets that can be touched in essence such as vehicles, personal property, real estate, or cash.
- Intangible assets – Assets that are non-physical but have value such as stocks held in an account, bonds, contracts, a client list, brand, or royalties.
Some of the categories above can be applied to professionals and individuals alike where as others may be better suited for one type of asset owner. Also, some categories may seem to overlap such as tangible assets and liquid assets. This is because the terms depend on the method or context that you are using to list them.
Common Examples of Assets
Cash is the best asset since it’s easy to calculate. This refers to physical cash as well as cash in accounts.
Stocks, Bonds, Certificates of Deposit, Mutual Funds, and other financial investments are assets. Stocks and Mutual Funds are liquid assets but CDs and Bonds have a maturity date and are considered fixed assets.
Real estate property is considered an asset. Some professionals do not consider your primary residence an available asset because you can not just sell your home and give up your home but others do consider it an available asset because you could always sell it, use the equity as an asset, and rent from that point on. Vacation homes and rental properties would definitely be considered available assets and I don’t think anyone would disagree on that.
Vehicles are available assets. Even though the value depreciates over time, they are absolutely still considered assets. Furniture and jewelry are personal property that holds value so they are considered assets as well.
If you own a business, there are a lot of assets that should be considered. If you were to sell a business, a lot of the value comes from intangible assets such as client lists, marketing brand, and subscriptions. Although these assets are tied very tightly to the success of the business, they are assets of that business.
Why Would You Need to Calculate Total Available Assets
There are a number of reasons you may want to calculate the total available assets. One of the most obvious reasons is the determine your net worth. By calculating your Total Available Assets and subtracting your Liabilities, you will determine your Net Worth. Having a positive net worth is indicative of healthy finances.
Another reason to calculate the total available assets may be to apply for credit. Creditors want to know your available assets to determine how to rate you according to the risk of lending you a line of credit.
Similarly, if you are applying for a business loan, lenders will want to see your total available assets to help them determine if you are a good or bad risk for lending money. Your assets are seen as collateral in many ways.
Mortgage lenders have a similar process for deciding whether or not to lend you money to buy a home.
Determining your total available assets may be helpful in planning your estate so that when you depart this world, your family that is left behind won’t be overwhelmed by determining what has been left while they are already dealing with heavy loss.
Lastly, you can analyze total available assets on balance sheets of companies that you are considering investing in.
This gives you an opportunity to study a company’s annual and quarterly reports to determine if the company is financially healthy which is how value investors evaluate companies using fundamental analysis.
For example, this is the quarterly report filed to the SEC by a famous computer company that has the logo of a fruit on most of its products (yes, it’s Apple!):
You could see how this would be helpful in determining a company’s value. Want to learn more about investing and getting started? Read how to start investing for the first time for a primer course!
How Do you Calculate Total Available Assets?
Two formulas that you may need are:
Net Worth = Total Available Assets – Liabilities
Net Worth is a great indicator of overall financial health. Someone that has a lot more assets than liabilities is less likely to default on a loan or come into financial strife when an unexpected situation arises.
Someone with more liabilities than assets will have a negative net worth which may make it more difficult to have credit issued to them.
Total Available Assets = Current Assets + Long-Term Assets
What’s the Difference Between Total Available Assets and Current Assets?
As you saw in the example above, Current Assets are only part of the formula calculating total available assets. Total Available Assets are the sum of Current Assets and Long-Term Assets where Current Assets are assets that can be quickly and easily drawn upon such as cash in a bank account or stocks and bonds. Long-term Assets require time in order to draw upon them or convert them to cash such as real estate property or a retirement plan.
Current Assets vs Long-Term Assets
Current Assets are generally defined as those that can be sold or converted to cash quickly (ie. within a year). Long-Term Assets are any assets that may take longer than a year to convert to cash or sell.
Here are some examples:
|Current Assets||Long-Term Assets|
|Cash||Home or Buildings|
|Savings Account / Checking Account||Land|
|Stocks/Bonds||Tax-Deferred Income (Retirement Plan)|
|Jewelry||Intangibles (ie. Client List, Brands, Patents)|
Hopefully, this cleared up what total available assets are and gave you insight into not only how to calculate it but also how to better classify different types of assets.
This is valuable in not only personal finances but also in business finances or accounting. You should be able to discern between tangible and intangible assets as well as current and long-term assets.
Using total available assets and liabilities to determine net worth can also give you a snapshot of your finances and aid you in determining the financial health of your personal life as well as any business.