I figure since I have to do all this writing for class might as well start including it on my blog from time to time. The following is an answer for a online discussion question this week for Advance Financial Management:
List the two types of assets that companies own. How can their value be estimated?
Operating asset: Asset acquired for or used in the income generating operations of the business (such as cash, inventory, prepaid expenses) and various fixed, long-term assets (such as plant and equipment). (http://www.businessdictionary.com)
Non-operating asset: Investment or other asset not used in the operations of a business, but instead is meant to generate additional income (such as interest income from a fixed deposit). (http://www.businessdictionary.com)
Concerning non-operating assets http://www.investopedia.com states:
Investors will evaluate the cash flows along with revenues, profits and other operating metrics when researching individual companies. While the operating cash flows give a better indication of the long-term profitability potential of a company, the non-operating cash flows are also important to follow. These cash flows will shed light on how much it costs a company to raise capital (through debt and share offerings) and how well they manage the balance sheet through investing opportunities and asset sales.I like looking at online definitions because they can add additional value to the text. The true value for each is determine by the potential future cash flows. However, looking at the two separately provide insight to the core business and how a firm handles its investments. Since the goal of any firm is to maximize shareholder wealth, what investors really want to know is how much meat is on the bone before they take a bite. Meaning how much is it really worth?