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Economics Strategy

What is an “asset”?

Do You Have Assets

(Source: Flickr)

When can you consider something that you have to be an asset?

This may sound like a funny question, but it is particularly important for the success of organisations and your success as an individual.

The answer turns out to be largely a matter of perspective.

If you are an accountant, then your goal is to categorise resources into groups: assets, liabilities, and equity.

From this perspective, assets will be resources that are owned or controlled by an organisation, and which can be used to better operate the business. These might include things like cash, inventory, property, plant and equipment.

If you are a financier, however, then your goal is a little bit different.  You are not trying to categorise resources into groups but rather to maximise your return on investment.

Looking at it this way, assets will be resources that increase in value or generate cash flow. This would include things like stocks (preferably dividend paying), interest bearing loans, bonds, and rental property. However, this perspective will tend to undervalue assets that don’t produce returns sufficiently quickly, and will basically ignore any value produced more than five years in the future.

If you are a strategist, then your goal is different again. You may have one eye on cash flows, but you are basically trying to ensure your organisation’s long term survival and prosperity.

With this in mind, assets will include resources that help the organisation maintain and strengthen its position over the longer term. This will include things like brand recognition, scale of operations and proprietary technology.

If you take the perspective of the financier, then you would rightly conclude that the paid subscriber base of media companies like The Australian, The New York Times and The New Yorker are assets since they undoubtedly generate a healthy stream of short term cash flows.

If you take the perspective of the strategist, however, then you may start to feel slightly uneasy.  In the world of digital media scale of operations is a critical strategic asset, and so steps that artificially limit subscriber numbers (by, for example, charging a subscription fee) are likely to inflict damage on the value of these organisations over time.

An asset may be an asset, but from whose perspective?

It may be a good time to take stock.

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