Key Takeaways
- A tangible asset is one that is typically in physical form and possesses a finite monetary value.
- Intangible assets are the opposite of tangible assets, in that they have value in theory instead of transactional exchange value.
- Evaluating both tangible and intangible assets allows investors to understand a company’s overall value and future potential.
It is important for investors to understand what tangible and intangible assets are, the differences between them, and the industries associated with each. To help, here is a guide on tangible vs. intangible assets.
What is a Tangible Asset?
A tangible asset is one that is typically in physical form and possesses finite monetary value.
Tangible and intangible assets are highly important to a company’s net worth and operations, and figure prominently on business balance sheets.
Most tangible assets have these characteristics in common:
- They can be touched, seen, or modified.
- They may, at length, depreciate as they deteriorate.
- They can serve as loan collateral.
- They can be used by a company for future economic benefit.
- They may maintain residual value following their useful life.
Examples of tangible assets include:
- Fixtures and furnishing. Includes assets such as office furniture and supplies.
- Machinery and equipment. This can include heavy equipment.
- Land. Whether it is being held for future development, speculative growth, or something else, physical land is a tangible asset.
- Buildings. These can include factories, warehouses, and office structures.
- Inventory. These assets can span the whole spectrum of production or manufacturing.
What are the Different Types of Tangible Assets?
Tangible assets are either current or fixed. Current assets possess a finite transaction value and may not necessarily be physically on site. Because they are converted to cash within a year, devaluation is not required over time. An example of a current asset would be inventory since it is likely sold within a year.
On the other hand, fixed assets, also known as long-term assets, are less liquid and frequently more capital intensive. They are assets that depreciate over time and lose value. Examples would be buildings and machinery.
What Types of Companies Have Tangible Assets?
Some industries have companies with more tangible assets than others, including:
- Manufacturing. These goods-producing companies are in steel and vehicle industries, for example. Tangible assets would be buildings, plant equipment, and computers.
- Technology. These organizations produce electronic devices such as computers and smartphones, for example. They utilize tangible assets to make their goods.
- Oil and gas. In this industry, companies own a great deal of fixed tangible assets including drilling equipment and oil rigs.
How are Tangible Assets Valued?
There are three chief ways in which a tangible asset is valued:
- Specific appraisal. A company will frequently hire an appraiser who specializes in a given field to assess value.
- Liquidation price. A tangible asset’s value is often viewed as the liquidation price it would get if it were brought to market.
- Replacement cost. This type of valuation is mainly utilized by insurance carriers in policies. It is used as the basis for establishing a building’s worth.
What are Intangible Assets?
Intangible assets are the opposite of tangible assets, in that they have value in theory instead of transactional exchange value. They represent prospective value. Characteristics of these non-physical assets include:
- They are usually easier to store than tangible assets.
- They frequently have no practical, everyday use. In other words, they often cannot be consumed or physically used.
- Their value may be less stable due to their nonexistent societal demand.
- They are typically easier than tangible assets when it comes to ownership transfer since there is no physical presence.
What are the Different Types of Intangible Assets?
These non-physical assets typically have a theoretical value produced by a company’s own valuation. While they are used over the long term, their future benefits are uncertain.
In the intellectual property space, intangible assets include:
- Patents. These give an inventor property rights.
- Trademarks. These symbols or phrases differentiate companies and cover specific products.
- Franchises. A buyer called a franchisee purchases a license with which they can sell products under a company’s name and use its brand.
- Goodwill. This is the value that exceeds a target company’s assets that another business pays during acquisition of the target company.
- Copyrights. These represent intellectual property that is shielded from utilization or duplication by non-authorized parties.
What Industries Have Intangible Assets?
There are some industries in which exists a relatively greater proportion of intangible assets:
- Technology. Computer companies such as Apple are prominent here. They have intangible assets such as patents, copyrights, and R&D.
- Entertainment. Companies here, including media companies, possess intangible assets such as key talent personnel and publishing rights. Copyrights to an artist’s songs are intangible assets, for example. Rights to a song could mean that revenue is earned each time a song is played or sold.
- Consumer. Intangibles for consumer products and services companies can include patents for recipes and formulas, for example.
- Healthcare. Intangible assets in these industries can include critical employees, brand names, and R&D.
- Automobile. Intangible assets are prominent here, and include brand names and patented technologies, for example.
How Do Intangible Assets Differ from Tangible Assets?
Whereas tangible assets may be physically touched, intangible assets may not. Further, many intangible assets, such as goodwill, are conceptual in nature.
By contrast, tangible assets have a physical presence and real-world utilization. A company vehicle is an example. It is true that it is generally easier to transfer, protect, and store intangible assets. However, tangible assets may possess a need and real-world application.
What Should Investors Know?
Before investing in a company, an investor may choose to evaluate both tangible and intangible assets to get a complete picture of a company’s value and potential. Tangible assets, like buildings and machinery, provide stability and can serve as collateral. This contribute to the company’s immediate financial health.
In contrast, intangible assets, such as patents and trademarks, drive future growth and innovation, even though they are harder to quantify and are more volatile.
These two asset groups help investors better assess a company’s current performance and future prospects.
How to Invest Beyond Stocks and Bonds
Portfolio diversification is foundational to long-term investing success. After all, it can mitigate risk, shield against inflation, and even improve returns.
Increasingly, those seeking to diversify their holdings are looking beyond the usual stocks and bonds. More and more, they are turning to less volatile, private-market tangibles such as art and real estate. Private markets have outperformed stocks in each economic downturn of nearly the last two decades.
Such asset classes are called “alternatives,” options beyond the stock market. One of the leading alternative investment platforms, Yieldstreet, offers the broadest selection of alternative asset classes available. To date, some $4 billion has been invested on the platform.
It is becoming ever popular to build a portfolio with a mix of asset types and expected performances, while potentially generating steady passive income.
Alternative Investments and Portfolio Diversification
Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.
Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.
In some cases, this risk can be greater than that of traditional investments.
This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.
However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments.
Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10000.
Learn more about the ways Yieldstreet can help diversify and grow portfolios.
In Summary
A company’s possessions of value can include tangible and intangible assets. The former has physical properties while the latter typically does not. While both tangible and intangible assets are recorded on company balance sheets, they are valued differently.
What's Yieldstreet?
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.
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