Asset

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Financial Terms Related to Asset

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Asset

  1. 1. Financial Terms related to Asset This document is part of the valuable contents available at www.ftpall.com, a free onlineglossary with more than five thousand financial and business terms. This document can be copied and distributed freely Find thousands of financial terms at www.ftpall.com respecting its original format. It is forbidden its transcription, translation or change on its format without authorization of its author or editor.ASSETAcquisition of assets • A merger or consolidation in which an acquirer purchases the selling firms assets.After tax proceeds from sale of old asset • Found by subtracting applicable taxes from the proceeds from the sale of an old asset.Asset • (1) Anything that an individual or a corporation owns that has economic value to its owner. Examples of an asset are cash, accounts receivable, inventory, real estate, and securities. (2) A Balance Sheet item expressing what a corporation owns. • Any possession that has value in an exchange.Asset activity ratios • Ratios that measure how effectively the firm is managing its assets.
  2. 2. www.ftpall.com 2|PageAsset allocation • The division of an investment portfolio into major asset categories, such as bonds, common stocks, or cash, usually to balance risk and reward appropriate for an investors age.Asset allocation decision • The decision regarding how an institutions funds should be distributed among the major classes of assets in which it may invest.Asset allocation fund Find thousands of financial terms at www.ftpall.com • A Mutual Fund that splits its investment assets among stocks, bonds, and other vehicles in an attempt to provide a consistent return for the investor.Asset and asset allocation • "Anything of value that you own that adds to your net worth; asset allocation refers to managing your finances by choosing or rejecting investments based on a specified strategy, such as aggressive growth, current income, minimizing taxes, etc.Asset and liability management • Is the process for financial institutions and corporations to adjust their funding and usage of funds. Some approaches are the Bucket, GAP, Hedging, Matched Book, Matched Funding, Financial Swaps, and Structured Products. With the lowering of various insurance, investment and commercial banking barriers, the definition is now more inclusive. Previously, it tended to be reserved for non-investment banking and brokerage operations. Broker/dealer institutions tended to describe their hedging activities as risk management.Asset backed securities • Is a security backed by notes or receivables against assets other than
  3. 3. www.ftpall.com 3|Page real estate. Some examples are autos, credit cards, and royalties.Asset backed security • A security that is collateralized by loans, leases, receivables, or installment contracts on personal property, not real estate.Asset based financing • Methods of financing in which lenders and equity investors look principally to the cash flow from a particular asset or set of assets for a return on, and the return of, their financing. Find thousands of financial terms at www.ftpall.comAsset classes • Categories of assets, such as stocks, bonds, real estate and foreign securities.Asset coverage test • A bond indenture restriction that permits additional borrowing on if the ratio of assets to debt does not fall below a specified minimum.Asset for asset swap • Creditors exchange the debt of one defaulting borrower for the debt of another defaulting borrower.Asset pricing model • A model, such as the Capital Asset Pricing Model (CAPM), that determines the required rate of return on a particular asset.Asset substitution • A firms investing in assets that are riskier than those that the debt holders expected.Asset substitution problem • Arises when the stockholders substitute riskier assets for the firms existing assets and expropriate value from the debt holders.
  4. 4. www.ftpall.com 4|PageAsset swap • An interest rate swap used to alter the cash flow characteristics of an institutions assets so as to provide a better match with its liabilities.Asset turnover • The ratio of net sales to total assets.Asset/equity ratio • The ratio of total assets to stockholder equity.Asset/liability management Find thousands of financial terms at www.ftpall.com • Also called surplus management, the task of managing funds of a financial institution to accomplish the two goals of a financial institution: (1) to earn an adequate return on funds invested and (2) to maintain a comfortable surplus of assets beyond liabilities.Assets • Everything of monetary value owned by the business including cash, accounts receivable, inventory, equipment, buildings and land. • Refer to properties owned or are due to a person or organization. Assets are typically viewed in three categories. These three classifications are: Current, Fixed or Long-term, and Intangible. • A firms productive resources.Assets requirements • A common element of a financial plan that describes projected capital spending and the proposed uses of net working capital.Assets to equity • The ratio of assets to equity in the company; a measure of leverage, which has a bearing on the Profitability of the firm.Capital asset
  5. 5. www.ftpall.com 5|Page • All tangible property -- including securities, real estate, and other property -- held for the long term. • see Fixed Assets • A fixed asset that is amortized; land; or financial asset (common shares, preferred shares, and fixed income securities like bonds) held by a corporation.Capital asset pricing model • Abbreviated CAPM. An economic theory that describes the relationship Find thousands of financial terms at www.ftpall.com between risk and expected return, and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification. The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security plus a risk premium. • Is a tool that relates an assets expected return to the markets expected return. It combines the concepts of efficient capital markets with risk premiums. The idea of capital market efficiency assumes immediate instantaneous -response to perfect or near perfect information. The risk premiums relate an investment to the markets risk-free or riskless rate of return. Typically, this risk-free rate is viewed in terms of principal safety for short term U.S. government obligations. Here, beta relates the volatility of an asset to the market. • Abbreviated CAPM. The basic theory that links together risk and return for all assets. The CAPM predicts a relationship between the required return, or cost of common equity capital, and the nondiversifiable risk of the firm as measured by the beta coefficient.Cost of new asset
  6. 6. www.ftpall.com 6|Page • The net outflow required to acquire a new asset.Current assets • Refer to properties or items which are expected to be paid or sold within a year. The specific list is broad but can be categorized as cash, cash equivalents, securitized liquid investments, accounts receivable, inventories, and securities maturing within a year. • Value of cash, accounts receivable, inventories, marketable securities and other assets that could be converted to cash in less than 1 year. Find thousands of financial terms at www.ftpall.com • Appears on a companys Balance Sheet, representing cash, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that can be converted to cash within one year. • Short-term assets, expected to be converted into cash within one year or less. • Assets that should be a source of cash in the short term; cash, accounts receivable and inventoryDynamic asset allocation • An asset allocation strategy in which the asset mix is mechanistically shifted in response to -changing market conditions, as in a portfolio insurance strategy, for example.Exchange of assets • Acquisition of another company by purchase of its assets in exchange for cash or stock.Financial assets • Claims on real assets.Fixed asset • Long-lived property owned by a firm that is used by a firm in the
  7. 7. www.ftpall.com 7|Page production of its income. Tangible fixed assets include real estate, plant, and equipment. Intangible fixed assets include patents, trademarks, and customer recognition. • A tangible, long term asset such as land or building, held for use rather than sale.Fixed asset turnover • Measures the efficiency with which the firm has been using its net fixed, or earning, assets to generate sales. Find thousands of financial terms at www.ftpall.comFixed asset turnover ratio • The ratio of sales to fixed assets.Fixed assets • Refer to items such as buildings, furniture, memberships, and long-term leases. Typically, these properties are not intended for sale or disposal within a year. • Tangible resources with long life used in operation of the business: land, buildings, machinery, equipment and vehiclesIncremental cost of a new asset • The total of all costs incurred to get an asset to the point of being able to produce cash inflows for the company, less the proceeds from the sale of an old asset, often the asset being replaced.Installed cost of new asset • The cost of the asset plus its installation costs; equals the assets depreciable value.Intangible asset • Assets that cannot be seen or touched, but are valuable to a company. Examples include the value of trademarks, patents, franchise rights, and
  8. 8. www.ftpall.com 8|Page goodwill. • A legal claim to some future benefit, typically a claim to future cash. Goodwill, intellectual property, patents, copyrights, and trademarks are examples of intangible assets.Intangible assets • Refer to items such as goodwill or intellectual properties. Among the latter are copyrights, patents, and trademarks.Limitation on asset dispositions Find thousands of financial terms at www.ftpall.com • A bond covenant that restricts in some way a firms ability to sell major assets.Liquid asset • Asset that is easily and cheaply turned into cash - notably cash itself and short-term securities.Long term assets • Value of property, equipment and other capital assets minus the depreciation. This is an entry in the bookkeeping records of a company, usually on a cost basis and thus does not necessarily reflect the market value of the assets. • On the balance sheet, the value of a companys property, equipment and other capital assets, minus depreciation. These are usually recorded at cost and so do not necessarily reflect the market value of the assets.Net asset value • NAV is the price of a share in a mutual fund or investment company. This price is calculated once or twice daily. Net asset value is the amount by which the assets value exceeds the companys liabilities. It is calculated by adding up the market value of all securities owned by the company,
  9. 9. www.ftpall.com 9|Page subtracting the companys liabilities, and dividing this value by the number of shares of the company outstanding. Thus, the NAV indicates the current buying or selling price of a share in an investment company. • Abbreviated NAV. The value of a funds investments. For a mutual fund, the net asset value per share usually represents the funds market price, subject to a possible sales or redemption charge. For a closed end fund, the market price may vary significantly from the net asset value. • Abbreviated NAV. The value of a Mutual Fund share calculated once a Find thousands of financial terms at www.ftpall.com day, based on the closing market price for each security in the funds portfolio. It is computed by deducting the funds liabilities from the total assets of the portfolio and dividing this amount by the number of shares outstanding. • Refers to the value of a share or unit of investment. It is computed by adjusting the market value of all investments by the liabilities. Then this net dollar amount is divided by the number of shares or units outstanding. Unless there are additional charges to be imposed upon redemption, the Net Asset Value becomes the bid and transaction market price. Most open end funds only calculate transactional net asset values once a day based on the closing and settlement prices.Net assets • The difference between total assets on the one hand and current liabilities and noncapitalized long- term liabilities on the other hand.Non reproducible assets • A tangible asset with unique physical properties, like a parcel of land, a mine, or a work of art.Operating assets
  10. 10. www.ftpall.com 10 | P a g e • The difference between the four pincipal current assets (cash, marketable securities, accounts receivable, and inventories) and accounts payable.Other assets • Assets other than current and fixed, normally deposits and prepaid expensesOther current assets • Value of non-cash assets, including prepaid expenses and accounts receivable, due within 1 year. Find thousands of financial terms at www.ftpall.com • A balance sheet item. The value of non-cash assets -- such as prepaid expenses and accounts receivable -- due within one year.Policy asset allocation • A long-term asset allocation method, in which the investor seeks to assess an appropriate long-term normal asset mix that represents an ideal blend of controlled risk and enhanced return.Proceeds from sale of old asset • The cash inflows, net of any removal or cleanup costs, resulting from the sale of an existing asset.Publicly traded assets • Assets that can be traded in a public market, such as the stock market.Quick asset ratio • Refers to the ratio of cash, cash equivalents and accounts receivable relative to the total current liabilities. It is also known as the Acid Test Ratio. This measure of liquidity is more rigorous than the Current Ratio.Quick assets • Refer to current assets which are readily convertible into cash. These quick assets are often defined as current assets minus inventory values.
  11. 11. www.ftpall.com 11 | P a g e • Current assets minus inventories.Rate sensitive assets • For a given time horizon t, all assets whose return is not fixed but will be repriced with changes in interest rates are called Rate Sensitive Assets, or RSA.Real assets • Identifiable assets, such as buildings, equipment, patents, and trademarks, as distinguished from a financial obligation. Find thousands of financial terms at www.ftpall.comReproducible assets • A tangible asset with physical properties that can be reproduced, such as a building or machinery.Residual assets • Assets that remain after sufficient assets are dedicated to meet all senior debt holders claims in full.Return on assets • Abbreviated ROA. Calculated by dividing a companys annual earnings by its total assets, displayed as a percentage. Useful to indicate how profitable a company is relative to its total assets. • Abbreviated ROA. Indicator of profitability. Determined by dividing net income for the past 12 months by total average assets. Result is shown as a percentage. ROA can be decomposed into return on sales (net income/sales) multiplied by asset utilization (sales/assets).Return on total assets • Abbreviated ROA. Measures the overall effectiveness of management in generating profits with its available assets; also called return on investment (ROI).
  12. 12. www.ftpall.com 12 | P a g e • The ratio of earnings available to common stockholders to total assets.Risk free asset • An asset whose future return is known today with certainty.Riskless or risk free asset • An asset whose future return is known today with certainty. The risk free asset is commonly defined as short-term obligations of the U.S. government.Risky asset Find thousands of financial terms at www.ftpall.com • An asset whose future return is uncertain.Tactical asset allocation • Abbreviated TAA. An asset allocation strategy that allows active departures from the normal asset mix based upon rigorous objective measures of value. Often called active management. It involves forecasting asset returns, volatilities and correlations. The forecasted variables may be functions of fundamental variables, economic variables or even technical variables.Tangible asset • An asset whose value depends on particular physical properties. These include reproducible assets such as buildings or machinery and non- reproducible assets such as land, a mine, or a work of art. Also called real assets. Related: Intangible assetTotal asset turnover • Indicates the efficiency with which the firm uses all its assets to generate sales. • The ratio of net sales to total assets.Total assets
  13. 13. www.ftpall.com 13 | P a g e • This denotes the financial framework (capital structure) of a company, including Long-Term Debt and all forms of Equity. If you are working from a companys Balance Sheet, add current assets, property, plant equipment, and other assets. The accounting formula is:Total assets = total liabilities + shareholders equity • This formula demonstrates the balance in the Balance Sheet.Total debt to total assets • Calculated by adding Short-Term and Long-Term Debt, then dividing by a Find thousands of financial terms at www.ftpall.com companys Total Assets. Used to measure a companys financial risk, determining how much of the companys assets have been financed by debt.Underlying asset • The asset that an option gives the option holder the right to buy or to sell.Wasting asset • An asset which has a limited life and thus, decreases in value (depreciates) over time. Also applied to consumed assets, such as gas, and termed depletion. • Is a derivative instrument that may expire worthless after a stated time or event. Options, Rights, and Warrants are three wasting assets.

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