What is a 'Non-Operating Asset'
A non-operating asset is a class of assets that are not essential to the ongoing operations of a business but may still generate income or provide a return on investment (ROI). These assets are listed on a company's balance sheet along with its operating assets, and they may or may not be broken out separately. Companies hold non-operating assets for several reasons.
BREAKING DOWN 'Non-Operating Asset'Also known as redundant assets, non-operating assets may be assets related to a closed portion of the business, and the business may be holding onto them with the intention of selling or using them in the future. For example, imagine a business owns several retail locations and it closes one of its locations. However, it still owns the building. Because the building is no longer instrumental in the business's day-to-day operations, it is labeled as non-operating, but because it still holds value, it is also considered an asset.
Non-Operating Assets to Diversify Risk
In other cases, non-operating assets can be used to diversify operational risks. For example, a business may own some real estate or patents, simply as cash investments. Although these assets are not tied to the business's operations, the business may still earn some revenue or return from them. If the business losses money through its operations, these non-operating assets can provide diversification and act as a financial backup.
Non-Operating Assets and Non-Operating Income
Non-operating income refers to revenue an organization earns that is not connected to its core operations. In some cases, non-operating income comes from non-operating assets. To continue with the above example, if the business rents out its empty retail location, the money it collects in rent is non-operating income. Similarly, if a business has investments that are not related to its operations, the returns it earns on those investments is non-operating income.
However, non-operating income does not always come from non-operating assets. It may also include gains from foreign exchanges or other forms of peripheral income such as a one-time gain on investment securities.
Non-Operating Assets and Company Evaluation
Non-operating assets are often treated separately than operating assets when evaluating a company or its stock. The value of non-operating assets counts toward the total worth of the company. However, their value is excluded from financial models that estimate the future growth or profit earning potential of the core business segments, simply because, although non-operating assets may bring revenue into a company, they are not used to generate core revenue.