Financial assets are non-physical assets whose values were derived from a contractual agreement with another party.
They are valued according to how much cash they can be converted to.
The most common types of financial assets are bonds, stocks, mutual funds, bank deposits, loans, and receivables
The role of a financial asset is to generate income for a business. With smart investing, a business can use financial assets to generate a meaningful income.\
This is why it’s important that a business owner is aware of what assets they have, and how they can best use them.
Private equity companies like IW Capital help businesses leverage their assets, as well as providing debt and equity opportunities.
Here is a closer look at these types of financial assets and what they mean to businesses:
Bonds are loans made by large organizations. In short, they are seen as “IOUs” that can be traded on the financial markets.
Bonds are most typically used by the government and larger corporations.
When an organization wants to borrow money, they usually do so by selling bonds to investors.
This means when you buy a bond, you’re buying that debt.
In essence, you’re buying a financial asset to the value of that bond.
Stocks are known as equity or shares and represent a stake in a business.
They are a type of financial asset that can be bought or sold, fluctuate in value, and historically have performed very well compared to other financial investments.
When an investor buys stock in a company they become a part-owner.
They then share in the profits and losses of the company and can choose to sell their stocks if they wish.
Companies sell stocks to raise funds for use within their business.
3. Mutual funds
Mutual funds are investments that are made by a group of investors pooling their money together to buy a collection of financial assets.
This will typically consist of several types of financial assets, such as bonds, stocks, and other securities.
The benefits of mutual funds are that it allows individuals to purchase assets they were not able to no their own
Opening up more opportunities, reducing the risk, and bringing in other knowledgeable investors.
The drawbacks are that there are extra costs that are involved in managing a mutual portfolio.
There is also some added risk of taxable events, but this is dependent on the types of investments.
4. Bank deposits
Bank deposits are funds that are being kept in a banking institution for safekeeping.
The money can be in any kind of bank account, as long as you have the right to withdraw the funds it’s a financial asset.
5. Loans and receivables
Loans and receivables are non-derivative financial assets.
This form of asset is typically accrued when a company provides goods, services, or money to a customer which then becomes a debtor.