A:

Stocks are financial assets, not real assets. Financial assets are paper assets that can be easily converted to cash. Real assets are tangible and therefore have intrinsic value. Because the definition of a financial asset, rather than that of a real asset, best describes stock, this is the category into which it falls.

Assets Explained

An asset is something owned by an entity, such as an individual or business, that has value and can be used to meet debts and obligations. The total of an entity's assets, minus its debts, determines its net worth. Assets that are easily converted to cash are known as liquid assets. Those that cannot be converted to cash easily, such as real estate and plant equipment, are called physical assets.

Real Assets Vs. Financial Assets

Another important distinction is between real assets and financial assets. The Venn diagram of real assets and physical assets has significant overlap, as does that of financial assets and liquid assets.

Real assets are so named because they can usually be seen and touched. They are tangible assets with physical properties. A company truck, a building owned by an entity, a piece of farm equipment; these are all examples of real assets.

Financial assets, such as stocks, cannot be seen or touched, but they represent value to the entity that owns them. Unlike real assets, stocks and other financial assets can be converted to cash quickly when needed. Ideally, companies desire a mix of real and financial assets, though the ideal breakdown between the two varies greatly by industry.

RELATED FAQS
  1. What is the difference between fixed assets and current assets?

    Learn the differences between fixed assets such as land and current assets such as cash, as well as how these types of assets ... Read Answer >>
  2. What items are considered liquid assets?

    Learn what a liquid asset is, some examples of liquid assets, what a non-liquid asset is and what determines whether as asset ... Read Answer >>
  3. What does asset management mean in regards to real estate?

    Find out what role asset managers play in the real estate markets, how real estate portfolios are selected and why entrepreneurial ... Read Answer >>
  4. What are some examples of fixed assets?

    Learn the difference between fixed tangible assets and fixed intangible assets, and review examples of these two types of ... Read Answer >>
  5. Which consumer goods do Americans buy the most of?

    Explore the various factors that influence estimations of a tangible asset's useful life, as well as standard estimations ... Read Answer >>
  6. What is an aggregate limit and what type of insurance is it usually associated with?

    Understand why tangible assets are important to a company. Learn why the ownership of a tangible asset has benefits as well ... Read Answer >>
Related Articles
  1. Investing

    What is a Real Asset?

    A real asset is a physical asset that has value.
  2. Managing Wealth

    Explaining Financial Assets

    A financial asset is intangible property that represents a claim on ownership of an entity or contractual rights to future payments.
  3. Managing Wealth

    Comparing Tangible and Intangible Assets

    Tangible assets are physical assets such as land, vehicles or equipment.
  4. Managing Wealth

    Current Assets

    Current assets are all of the assets a company uses to fund its daily operations. These are the assets the company could convert into cash within a year in the normal course of business.
  5. Managing Wealth

    How to Calculate Your Tangible Net Worth

    You can calculate your tangible net worth with a simple equation.
  6. Managing Wealth

    What's a Tangible Asset?

    Tangible assets are property owned by a business that can be touched -- they physically exist. Examples include furniture and fixtures, computer hardware, delivery equipment, leasehold improvements ...
  7. Managing Wealth

    Explaining Net Tangible Assets

    Net tangible assets is a company’s total assets subtracting both intangible assets (such as goodwill and intellectual property) and total liabilities.
  8. Managing Wealth

    Asset Manager Ethics: Valuation Is A Tricky Business

    Asset managers must accurately represent all of a clients assets in the client portfolio. This can be tricky for unique and hard-to-value assets.
  9. Investing

    Key Reasons To Invest In Real Estate

    There has been a lot of negativity over the real estate sector since 2008. Here are the reasons why you should be investing in it.
RELATED TERMS
  1. Real Asset

    Physical or tangible assets that have value, due to their substance ...
  2. Business Asset

    A piece of property or equipment purchased exclusively or primarily ...
  3. Asset Valuation

    A method of assessing the worth of a company, real property, ...
  4. Long-Term Assets

    1. The value of a company's property, equipment and other capital ...
  5. Other Current Assets - OCA

    A firm's assets that do not include cash, securities, receivables, ...
  6. Asset Condition Assessment

    A report outlining how an organization can manage capital assets ...
Hot Definitions
  1. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an ...
  4. Salvage Value

    The estimated value that an asset will realize upon its sale at the end of its useful life. The value is used in accounting ...
  5. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  6. Promissory Note

    A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on ...
Trading Center