In order for any enterprise to develop steadily, it needs competently formed assets. One of the key groups of this type of funds are financial resources.
If you define such a term as an asset, then it is worth saying that these are various means that provide cash receipts in the form of both direct and hidden payments (increase in value, real estate, shares and the company itself).
In turn, financial assets are a combination of property values of an enterprise, having the form of cash and monetary instruments. All of them, of course, must belong to the enterprise. This category of assets should be attributed only to those economic resources of the enterprise, which are amenable to full control of its management.
The essence of such control is reduced to the ownership of the resources used by the enterprise. From here an obvious conclusion follows: those economic resources which the company uses cannot be considered an asset of the enterprise if they are not its property.
Why do we need such assets
The key objective of the financial resources discussed above is the income generation process. The ability to produce a stable income in the process of investing or operating activities is a key characteristic of a financial asset.
Such assets should be generated primarily as economic resources that have a certain productivity. At the same time, the process of using financial assets inevitably implies certain risks.
It is important to understand that those values that are formed in the process of using assets are directly related to the liquidity factor. We are talking about the following principle: the assets of the organization must be liquid. This means that they can be converted into cash at real market value. This characteristic is very important, because it is it that provides for the restructuring of the assets of an enterprise under adverse conditions for the company.
The role of financial assets in the capital cycle
Such resources of the enterprise primarily participate actively in the stages of the beginning and completion of the circulation of capital. In particular, it is precisely in terms of cash flow that the production cycle is determined. The bottom line is that the duration of the production and commercial cycle is equal to the period of time required for the turnover of funds.
The second role assigned to financial assets is the impact on the company's solvency, as well as on the liquidity of other funds of the company.
If we consider the general indicators of liquidity of the company's assets, they are reduced to the ability of the organization to fulfill its obligations in a timely manner and quickly release other funds from circulation, including cash.
Forms and types of financial assets
If we take into account international financial reporting standards, it can be argued that financial assets are the following resources:
- contractual right to claim cash or any financial assets from another entity;
- equity instrument of another organization;
- contractual right to exchange financial instruments with a company under conditions that have potential benefits.
Due to the classification of assets of a financial type, it is possible to competently organize and conduct analysis of a company. This, in turn, allows you to guarantee a high degree of security, financial stability and solvency of the business.
It is worth noting the fact that financial assets are the result of combining the three components. We are talking about cash, financial investments and claims (receivables).
To better understand what these and other financial assets are, you need to consider each type in more detail.
For financial assets such as cash, refers to the reason that it is a medium of exchange. This fact makes this resource the basis on which all transactions are evaluated.
Such a highly liquid asset of an enterprise can be expressed both in cash and in cashless form on various accounts maintained by credit organizations.
Most of these assets are investments in securities and other liquid resources.
In general, financial investments should be understood as a type of assets that has a documentary basis confirming the right of ownership of a particular organization and the receipt of a stable income arising from such rights.
To this form of assets include the following sources of profit:
- deposits in credit institutions;
- securities of other companies, including debt;
- authorized capital and contributions of other organizations;
- provision of loans to various companies;
- municipal and state securities, etc.
This list can be supplemented depending on the activities of a particular company.
Valuation of financial assets is reduced to accounting for this type of company resources. Under this type of debt is meant the amount of debt owed to the enterprise by other companies and organizations, as well as specific citizens with the status of debtors.
This form of asset relates to virtually all settlements with customers and may result in payables. An individual or legal entity that has a debt to a particular company can be considered as a debtor.
Under this term is to understand the indicator of the value of the property of the organization, which is calculated annually. This type of assets, in fact, is the difference of those resources that are on the balance sheet of the company and its debt obligations. An obvious conclusion follows from this: if a company’s debts become larger than the total value of its property, then net assets are determined as negative. In this case, to characterize the state of the company, the term “insufficiency of property” is used.
In order to calculate net assets, it is necessary to take the balance sheet data on assets and liabilities as a basis. But in the process of such a calculation it is not necessary to include in the category of assets debt on contributions to the share capital from the founders and the value of property securities that were bought out from the company's shareholders. At the same time, it is necessary to exclude capital, reserves and deferred income from liabilities.
To this type of assets can be attributed to the totality of funds that are advanced in order to form circulation funds and productive assets that ensure a continuous circulation of capital.
Current assets include the following resources of the enterprise:
- means of labor, having a service life of not more than 1 year;
If we pay attention to the movement of such assets, we can distinguish three key stages:
– Money. We are talking about the process of turning financial assets into the form of inventories.
– Productive. This stage is characterized by the continuation of the advance cost of the product being created, but only in the amount of inventories that were used. This period also includes advances in wage costs.
– Investing in finished products. After the transformation of the commodity form of the created value into the monetary, the advanced funds are restored by receiving the proceeds from the products that have been sold.
As you can see, financial assets are the basis of an enterprise, without which its full existence is not possible.