Financial assets are a specific form of ownership that allows a company to generate additional income. They give the owner the right to demand payment from the creditor in accordance with the contract.
Instructions
Step 1
Financial assets include gold, securities, currency and deposits, insurance technical reserves, loans, receivables and payables, and foreign direct investment. Equity instruments of other companies also belong to them. In any case, a distinctive feature of financial assets is that they can be easily exchanged for money (i.e., they have high liquidity), or for other financial instruments.
Step 2
In turn, financial assets do not include debt on advances, contractual rights on futures, non-contractual assets, tangible and intangible assets. The ownership of these assets, although it is profitable, does not give the right to receive other financial assets. Also, tax liabilities are not included in the number of assets. It cannot be considered as a financial instrument, since has no contractual character.
Step 3
The opposite concept for financial assets is financial liabilities. They arise when the creditor receives money from the debtor under the terms of the contract. This procedure is a financial asset for the creditor and a liability for the debtor.
Step 4
The division of financial transactions into assets and liabilities is carried out not according to their subject, but according to the direction of the transaction. The same instruments, for example, securities for some companies can be an asset, and for others - a liability. Thus, when a company issues its own shares and sells them on the open market, they act as a means of raising debt capital or as a financial liability. For those companies that buy these shares on the exchange, they become assets.
Step 5
Financial assets differ from productive assets in that they do not have consumer properties. Their sole purpose is to bring profit to the company from their acquisition. It is obvious that the company will not invest its funds in those financial assets that will not be able to bring additional income.
Step 6
Rational use of financial assets ensures the rhythm of the operating cycle, as well as the stability of the flow of working capital. Accordingly, the efficiency of the company is largely determined by the competent management of financial assets. The main goals of management should be to ensure the balance of financial flows, their synchronization of formation in time, as well as to ensure the growth of the company's net cash flow.
