Tangible assets: Overview, definition, and example
What are tangible assets?
Tangible assets are physical, real assets that have value and can be touched, seen, or physically measured. These assets typically include things like buildings, machinery, vehicles, inventory, and land. They are distinguished from intangible assets, which are non-physical items such as patents, trademarks, or goodwill. Tangible assets are often a crucial part of a business’s overall value and are used in its day-to-day operations to generate revenue.
For example, a manufacturing company’s tangible assets might include the factory where it operates, the machinery used to produce goods, and the raw materials stored in its inventory.
Why are tangible assets important?
Tangible assets are important because they provide the foundation for a business’s operations and are essential for producing goods or services. They can be used as collateral for loans, sold or leased for revenue, and are a key factor in determining a company’s financial health and stability. For businesses, tangible assets often represent a significant portion of the company’s total value, and they can be depreciated over time for tax purposes.
For investors, understanding the value and condition of a company’s tangible assets can help assess the business’s capacity to generate income, cover liabilities, and sustain operations.
Understanding tangible assets through an example
Imagine a logistics company that owns a fleet of trucks, warehouses, and equipment. These physical assets are considered tangible because they can be used to provide delivery services and are essential to the company’s operations. Over time, the trucks and equipment will depreciate, but they still hold value and contribute to the company’s ability to generate income.
In another example, a retail business owns the building where it operates and the inventory it sells. The value of the building and the inventory represents tangible assets that can be appraised and sold if necessary. These assets are also critical for the business’s operations, allowing the business to run and generate revenue through the sale of products.
An example of a tangible assets clause
Here’s how a tangible assets clause might appear in a contract:
“The Buyer agrees to purchase the Tangible Assets, including but not limited to the Property, Inventory, and Equipment, as listed in Schedule A of this Agreement. The Buyer acknowledges that these assets are essential for the continued operation of the Seller’s business.”
Conclusion
Tangible assets are physical assets that have intrinsic value and are vital to the operations of a business. They provide the necessary infrastructure and resources to produce goods or services, and they hold significant financial value for the company. Understanding and managing tangible assets is crucial for maintaining operational efficiency, securing financing, and determining a company’s overall worth.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.