Capital Assets

In this section of a balance sheet there is, unfortunately, some terminology confusion. Hence, I have to start by fixing this little definition problem.

In this section I will use the term Capital Assets (or ‘Long-Term Assets’) to refer to corporate assets with life expectancy of more than one year. All of them. I will avoid using the term Property, Plant and Equipment (PPE) altogether, because I believe that in proper financial analysis project these three categories must be handled separately.  

I also do not particularly like the term ‘Tangible Assets’ because it is way too broad. I prefer to use – instead of PPE – the term Operational Capital Assets to refer to long-term assets that are used in corporate operations to make money. These are then broken down in three natural categories – Equipment, Buildings (that include capitalized improvements) and Land. And, obviously, include a contra account Accumulated Depreciation.

Then we have Intangible Operational Assets that are also used in corporate operations to make money – patents, trademarks, franchises, brand names, etc. I do not specifically like goodwill, but it has to be accounted for somehow.

Like tangible operational assets, their intangible siblings also include a contra account - Accumulated Amortization. In this guide I will not deal with the concept of depletion – it is way too specific and I would like to focus on the most common assets.  

And, finally, we have Financial Capital Assets. Primarily long-term investments in various forms of illiquid private equity.