- So what are assets?
Well, we kind of have an intuitive sense of this.
A formal definition is that assets are resources owned
or controlled by a company
that will provide probable future benefit.
Let's take the simplest example.
If you look at the balance sheet of Apple,
you can see they've got lots of cash,
billions of dollars in cash.
Is that a resource that
will provide probable future benefit?
Yeah, cash is a good asset, but cash is not the only asset.
If you are a financial institution such as Wells Fargo Bank
or Bank of America, your biggest asset
is an asset we call accounts receivable
or loans receivable.
These receivables represent the expectations
that you're going to collect money
from people in the future
based on contracts exist in place right now.
Now, can a contract, a piece of paper, really be an asset?
If I have a piece of paper
that somebody has signed where they've promised
to pay me $10,000 in the future,
is that a valuable thing, is that an asset?
Sure it is.
The primary asset of any bank
is accounts or loans receivables.
Citibank has over trillion dollars
in accounts or loans receivable.
That's trillion with a t, that's a huge asset.
This asset represents money
that Citibank expects to collect in the future
from the people who borrowed it from them
in the first place.
Well, how about Walmart?
Let's do a little mental trip into a Walmart store.
Close your eyes.
Drive into the Walmart parking lot and get out of your car.
Now you're walking across the parking lot,
you're walking on one of Walmart's assets.
The land is Walmart's asset.
You walk into the building,
the building is another Walmart asset.
Stand in the middle of the store,
look around at all the stuff on the shelves,
that's called inventory,
the stuff that you can buy from Walmart.
Inventory is an important asset for Walmart.
Land, buildings, and inventory,
those are all very important assets for Walmart.
For United Airlines or Delta Air Lines,
important assets are the airplanes.
For Disney, important assets are the theme parks.
Assets are resources owned
or controlled by a company
that provide probable future benefit.
Alternatively, assets are the things
that a company uses to provide services to its customers
so that their customers will pay them.
These are assets.