{"id":12233,"date":"2023-01-04T01:49:00","date_gmt":"2023-01-04T01:49:00","guid":{"rendered":"https:\/\/businessyield.com\/?p=12233"},"modified":"2023-02-05T00:50:16","modified_gmt":"2023-02-05T00:50:16","slug":"financial-assets","status":"publish","type":"post","link":"https:\/\/businessyield.com\/finance-accounting\/financial-assets\/","title":{"rendered":"Financial assets: All you need to leverage effectively (+ best tips)","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"\n
Financial assets bring more money, whereas financial liabilities take out money from our pockets. In this article we will discuss the characteristics of financial assets, different types of financial assets and real assets, definition of non financial assets and financial liabilities. <\/p>\n\n\n\n
We have also provided free pdfs that will aid your understanding of the subject. <\/p>\n\n\n\n
Without further ado, let\u2019s proceed.<\/p>\n\n\n\n
What is a financial asset?<\/p>\n\n\n\n
A financial asset is any asset that is:<\/p>\n\n\n\n
1. Cash<\/p>\n\n\n\n
2. A contractual right to receive cash or another financial asset from another entity<\/p>\n\n\n\n
3. A contractual right to exchange financial assets\/ liabilities with another entity under conditions that are potentially favourable.<\/p>\n\n\n\n
4. An equity instrument of another entity.<\/p>\n\n\n\n
According to Investopedia, a financial asset is a liquid asset that gets its value from a contractual right or ownership claim.<\/p>\n\n\n\n
Contractual rights are those rights that are guaranteed under a contract and which are legally enforceable.<\/p>\n\n\n\n
Examples of financial assets include: cash, stocks, bonds, mutual funds, and bank deposits. <\/p>\n\n\n\n
Note: Financial assets do not necessarily have inherent physical worth or physical form, unlike land, property and commodities.<\/p>\n\n\n\n
Rather, their values reflect factors of supply and demand in the marketplace in which they trade, as well as the degree they carry.<\/p>\n\n\n\n
Financial liabilities on the other hand:<\/p>\n\n\n\n
A financial liability is any liability that is a contractual obligation:<\/p>\n\n\n\n
1. To deliver cash or another financial asset to another entity or<\/p>\n\n\n\n
2. To exchange financial instruments with another entity under conditions that are potentially unfavourable or<\/p>\n\n\n\n
3. That will or may be settled in the entity\u2019s own equity instruments.<\/p>\n\n\n\n
A liability is something a person or company owes, usually a sum of money. <\/p>\n\n\n\n
Liabilities include loans, revenues, bonds, warranties, and accrued expenses.<\/p>\n\n\n\n
In the world of accounting, a liability is defined by previous business transactions, events, sales, exchange assets or services, or anything that would provide economic benefit later.<\/p>\n\n\n\n
See also: Accounting and finance: Difference, jobs, courses, careers (+ top university picks)<\/a><\/p>\n\n\n\n Financial assets consist of bank loans, direct investments, official private ownership of debt and equity securities, and other financial instruments.<\/p>\n\n\n\n Bank deposits, cash, stocks, bonds, and mutual funds are all examples of financial assets.<\/p>\n\n\n\n Intangible assets include financial assets, often known as financial instruments or securities. They are frequently used to finance the ownership of real estate and equipment.<\/p>\n\n\n\n Examples of financial assets traded for cash easily include: treasury bills, trade bills, commercial papers, etc.<\/p>\n\n\n\n This means that the cost of investing in the financial assets and getting them back to cash is negligible.<\/p>\n\n\n\n Or, preference shares converted to equity shares. <\/p>\n\n\n\n Or, a company bond converted into equity shares of the company.<\/p>\n\n\n\nWhat are the three different forms of financial assets?<\/h2>\n\n\n\n
What types of financial assets exist?<\/h2>\n\n\n\n
What are other names for financial assets?<\/h2>\n\n\n\n
Characteristics of financial assets<\/span><\/h2>\n\n\n\n
There are peculiar characteristics in financial assets that are used to determine their pricing in the financial markets.<\/p>\n\n\n\n
Let\u2019s take a look at some of them:<\/p>\n\n\n\n1.Ability to generate income<\/span><\/h3>\n\n\n\n
It implies that they should be easily convertible to cash within a defined time and determined value. <\/p>\n\n\n\n2. Reversibility<\/span><\/h3>\n\n\n\n
They act like deposits in accounts of customers with the bank. <\/p>\n\n\n\n3. Maturity period<\/span><\/h3>\n\n\n\n
Maturity period refers to the length of time within which the corporate entity or institution that employs a financial instrument to raise funds will use the funds before its payment back to the holders of the instrument.<\/p>\n\n\n\n4. Predictable returns<\/span><\/h3>\n\n\n\n
The return on investment on financial assets must be predictable for the purpose of their being patronized by investors.<\/p>\n\n\n\n5. Convertibility<\/span><\/h3>\n\n\n\n
This implies that a financial asset can be converted into another class of asset which will still be held by the corporate entity.<\/p>\n\n\n\n
For example, the conversion can take place in form of a bond converted to bond. <\/p>\n\n\n\n