What Are Non-Core Assets?
Non-core assets are assets that are either not essential or simply no longer used in a company's business operations. Non-core assets are often sold when a company needs to raise cash. Some businesses sell their non-core assets in order to pay down debt. Although non-core assets are not critical to a company's core operations, they do have value and can generate a return on investment.
- A non-core asset can be any kind of asset that's not essential to generating revenue and the core business operations of a company.
- A non-core asset could be investment securities or a factory or property that is no longer being used.
- Non-core assets might also be an entire subsidiary or a holding in another company.
Understanding Non-Core Assets
A non-core business asset can be any kind of non-essential asset with respect to generating revenue and the core business operations of the company. A non-core asset could be a factory or property that is no longer being used. Non-core assets might also be an entire subsidiary or a holding in another company. Typically, non-core assets can include the following:
- Real estate
- Idle equipment
- Natural resources
- Investment securities
- Land that's not being used
Non-core assets can also be referred to as non-operating assets because they may generate income or provide a return on their investment but are not essential to the ongoing operation of the company. Apple Inc. might own marketable securities, for example, that generate investment income. However, the securities are not essential to generating revenue for the company's core operation of selling iPhones.
Whether an asset is considered, non-core is entirely relative to the company. An asset that is non-core for one company might be a core asset for another. An oil company might sell off some real estate that's considered a non-core asset. The real estate company that purchases it with the goal of developing it into an office park would consider the property a core asset.
Non-Core Assets vs. Core Assets
Core assets include the assets that are critical to a company and its business operations. In other words, core business assets are needed for the company to generate revenue and remain profitable. Core assets can include equipment, machinery, factories, and distribution channels, such as vehicles. Core assets can also include a trademark or a patent.
Conversely, non-core assets are the assets that are not critical to the production of a company's goods, nor are they critical to generating revenue. Although non-core assets have value and can be important to a company, they're typically not viewed as core or central to the overall profitability of a company.
Real World Examples of Non-Core Assets
Sometimes a company will spin off a subsidiary that it considers non-core into a separate company. Selling off non-core assets cannot only raise cash but also make a company more efficient. If those non-core assets required maintenance and other expenses such as taxes, unloading them would eliminate those costs, resulting in greater profitability.
Chesapeake Energy Corporation (CHK) reported a net loss of $308 million for all of 2019 according to the company's end-of-year earnings report filed on February 26, 2020. The company also had approximately $8.9 billion in outstanding debt. The company announced that it would enhance its liquidity or funding "with $300 to $500 million in proceeds from expected non-core asset sales." The funds are to be used to pay debt, such as bonds, that are maturing in 2020.
In 2018, Honeywell International Inc. (HON) announced via a press release that its two spin-offs would become independent companies per the filings with the U.S. Securities and Exchange Commission (SEC).
Garrett Motion Inc. was the spin-off of Honeywell's transportation systems business and Resideo Technologies, Inc. was the spin-off of Honeywell's Homes and ADI Global Distribution business. As a result, the companies became separate, legal entities. According to Honeywell, the sale of the non-core assets generated approximately $3 billion, which were to be used to pay down debt and buy back shares of stock.