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Current assets likecash equivalents and securitiescan easily be converted into cash.
They are long-term investments, while current assets represent short-term investments that can quickly turn into cash.
Equipment, properties andvehiclesare some non-current assets that can help businesses grow.
However, non-current assets also extend beyond tangible assets.
Some intangible assets like patents and goodwill also count as non-current assets.
You cant readily convert them into cash, and they provide meaningful value for the company.
Many businesses rely onproperties and equipmentto deliver products and services to their customers.
Without these non-current assets, many companies wouldnt be able to operate.
A good lineup of non-current assets makes it easier for a company to generate revenue in the long run.
Accounting for Non-Current Assets
Non-current assets are listed on a companys balance sheet.
Businesses do not list theentire non-current assets value as an expense for accounting purposes.
Instead, companies record each non-current assets depreciation and include that as an expense.
Depreciation Methods for Non-Current Assets
Depreciation reflects the wear and tear an asset endures over time.
Businesses deduct an assets anticipated salvage value from its cost and divide the difference by its useful life.
Useful life measures how many years an asset takes to reach salvage value.
Assume a $10,000 asset will reach a $1,000 salvage value after five years.
Sum-Of-The-Years Digits
The sum-of-the-years digits depreciation method is a hybrid of straight-line and declining balance appreciation methods.
Sum-of-the-years digits stilldepreciatesan asset quicker than straight-line, but its not as dramatic as declining balance.
This formula is for the assets first year.
SYD is six because the asset has a three-year window.
3 + 2 + 1 =6, hence its name as sum-of-the-years digits.
That means anassetwill lose value quicker if it produces more units.
It can produce 10,000 units over its lifetime and has already produced 1,000 units.
However, its valuation will gradually decline as it incurs depreciation.
Examples of Non-Current Assets in Major Companies
UPS relies on many non-current assets to serve its customers.
The company releaseda year-end balance sheetfor 2023 that detailed how its capital is spread across non-current assets.
Property, plant, and equipment represented the largest non-current asset and was valued at $36.9 billion.
UPS purchased an additional $309 million in property, plant, and equipment in 2023.
Non-Current Assets and Business Strategy
Businesses acquire non-current assets to increase their capacity to serve customers.
Buying more vehicles allows UPS to expand its market share.
Walmarts numerous facilities allow it to provide one-day or same-day shipping in many parts of the United States.
These non-current assets allow UPS andWalmartto deliver levels of service that few companies can compete with.
Companies can anticipate long-term demand trends and acquire or sell non-current assets to reflect those trends.
For instance, UPS can buy more vehicles if it anticipates more people will buy products online.
Walmart can open stores in new areas that are seeing population growth.
Since non-current assets impact a company in significant ways, they also impact investors and shareholders.
Good non-current assetscan lead to more financial growth, which will push the stock price higher.
However, unproductive non-current assets will have the opposite effect and can hurt the stock price.
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