Financial Terms related to Asset

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ASSET

Acquisition of assets
• A merger or consolidation in which an acquirer purchases the selling
firm's 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.
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Asset 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 investor's age.
Asset allocation decision
• The decision regarding how an institution's funds should be distributed
among the major classes of assets in which it may invest.
Asset allocation fund

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• 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
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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.

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Asset 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 firm's 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 firm's
existing assets and expropriate value from the debt holders.
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Asset swap
• An interest rate swap used to alter the cash flow characteristics of an
institution's 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

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• 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 firm's 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
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• 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

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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 asset's expected return to the market's 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 market's 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
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• 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.

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• Appears on a company's 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 inventory
Dynamic 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
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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.

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Fixed 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 vehicles
Incremental 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 asset's
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
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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

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• A bond covenant that restricts in some way a firm's 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 company's 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 company's liabilities. It is calculated
by adding up the market value of all securities owned by the company,
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subtracting the company's 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 fund's investments. For a mutual fund,
the net asset value per share usually represents the fund's 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

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day, based on the closing market price for each security in the fund's
portfolio. It is computed by deducting the fund's 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
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• 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
expenses
Other current assets
• Value of non-cash assets, including prepaid expenses and accounts
receivable, due within 1 year.

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• 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.
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• 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.

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Reproducible 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 holder's claims in full.
Return on assets
• Abbreviated ROA. Calculated by dividing a company's 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).
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• 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

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• 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 asset
Total 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
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• 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 company's 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

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company's Total Assets. Used to measure a company's financial risk,
determining how much of the company's 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.