Operating assets

Operating assets are those assets acquired for use in the conduct of the ongoing operations of a business; this means assets that are needed to generate revenue. Examples of operating assets are:

  • Cash
  • Prepaid expenses
  • Accounts receivable
  • Inventory
  • Fixed assets

If there are recognized intangible assets, such as technology licenses needed to manufacture goods, these should also be considered operating assets.

Assets not considered to be operating assets are those used for long-term investment purposes, such as marketable securities. Assets no longer used for operations, such as assets held for sale, are also not considered to be operating assets. Further, a non-cash asset that is held for investment purposes, such as an investment property, is not considered an operating asset.

Investors like to compare the amount of total assets recorded by a business to the total amount of operating assets, to see if the business is operating with the correct proportion of operating assets. If not, they may push management to liquidate some non-operating assets and return the funds to investors in the form of a dividend or stock buyback. It is also useful to divide sales by total operating assets and observe on a trend line the ability of management to minimize its asset investment for each dollar of sales.

A sign of excellent management is a company that can continually generate profitable sales with the least investment in operating assets. However, this is not an easy interpretation to make, since a company expanding into new lines of business may find that different segments require the use of varying amounts of assets.