Guide to Operating Assets

Guide to Operating Assets

Operating assets are the assets you need to use in the ongoing process of running your firm. In other words, you need operating assets to earn the profit. Cash, accounts receivable, fixed assets (Also see Revaluation of Fixed Assets), prepaid expenses, as well as inventory are some common instances of operating assets.

If you have recognised some assets as intangible assets, for example, licenses of computer software you need to create blueprints for buildings, you should also consider these as your operating assets.

For the assets that you use for long-term investments, you should not consider them as operating assets in financial accounting (Also see How do You Distinguish Financial Accounting and Management Accounting?). An example of such cases is marketable securities. For the assets that you no longer use when you are running your business, for instance, assets held for sale, you should not recognise them as operating assets too. Besides, non-cash assets that you own for investment purposes, for example, investment properties, should not be one of your operating assets also.

Most investors tend to make comparisons between the amount of total assets a firm has recorded and the total number of operating assets. This is for them to know whether the business is running its operations by using the right proportion of their operating assets. Otherwise, they may urge the management of the firm to liquidate part of the non-operating assets so that they can receive the returned funds in the state of a stock buyback or dividend. If you divide sales by the amount of operating assets, it may be helpful to you if you want to observe the management’s capability to minimise the investment of its asset for every dollar it earns by looking at the trend line.

If a company can produce profitable revenue continuously without needing a substantial investment in its operating assets, it shows that the management of the organisation is handling its operations effectively (Also see Steps to Start a Successful Business). However, interpreting this can be challenging, as companies that expand their business into a few different lines may realise that they need to use different amounts of assets in various segments.

Operating assets play a vital role in the operation of your company. Hence, you should not underestimate the importance of managing their accounts properly. If you need help in handling the accounting chores of your firm, do not hesitate to hire an accounting firm in Johor Bahru to ensure that you always stay on top of your business.

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