Core Assets

What Are Core Assets?

Core assets include all assets including essential, important, or valuable property without which a company cannot carry on with its normal operations and remain profitable. Core assets are required to help the company generate revenue.

These assets can be financed by long-term capital, such as bonds or by taking out debt. Core current assets may also be referred to as hardcore working capital.

In other parts of the financial world, core assets may also refer to the key investment vehicles an investor holds in his portfolio such as stocks and bonds.

Understanding Core Assets

As part of defining and executing a business strategy, a firm will require assets that are necessary to carry out this strategy. These assets represent core assets. These assets are thus crucial to the continued financial success of a business. In short, they help a company run smoothly and stay viable. They will always be indicated in a PERT chart.

A company needs these core assets to build its revenue base and remain profitable. They may be tangible assets such as machinery, production facilities, distribution and storage outlets, or even affiliates and subsidiaries of a parent company. Core assets may also be intangible such as trademarks, patents, or intellectual property.

These essential inputs to production differ from discretionary assets, which as are often deemed nice to have but not essential to carry out central day to day functions.

Without its core assets, a business would dissolve. Companies that sell off core assets are usually liquidating and on the verge of bankruptcy. Companies that have trouble financially tend to initially raise money by selling off non-core assets instead of core assets. These are assets that are not essential to the continued functioning of a business.

Examples of Core Assets

Businesses operating in various industries or geographic regions will carry different sets of core assets. For instance, a beer manufacturer from the consumer staples sector may require specialized equipment as a core asset. A software design business from the information technology sector, on the other hand, will list intellectual property as a core asset, even though it is technically intangible in nature.

Analysts and investors monitor a business's core assets for material change or worrisome trends. When business activity slows, businesses may reluctantly sell-off core assets to raise capital for current liabilities. This creates the potential for adverse business outcomes because central inputs to production may not be available at a later date.

Key Takeaways

  • Core assets are required by companies to keep their operations running smoothly, and help them generate revenue.
  • These assets are can be financed by long-term capital or debt.
  • Examples of core assets may include tangible assets such as machinery, production facilities, and intangible assets such as intellectual property.
  • Companies that are forced to sell their core assets are generally liquidating or about to go bankrupt.

Core Assets vs. Non-Core Assets

As discussed above, core assets are required to keep a business running smoothly and to remain profitable. This is in contrast to its non-core assets. These can be assets that are not essential or no longer useful to the operation of the business and can be sold at any time when it is going through financial difficulty.

What constitutes a non-core asset—or a core asset—depends on the nature of the business. Non-core assets can be currencies, real estate, commodities, natural resources, or even a subsidiary.

What constitutes a core asset and a non-core asset depends on the nature of the business.