What are Operating Assets?
Operating Assets are necessary to a company’s ongoing core operations and directly support the continued generation of revenue and profits.
Operating Assets Definition
Operating assets have an integral role in the core business model of a company.
If an asset is required for day-to-day operations to sustain itself, it is most likely an operating asset since its contribution is essential.
Common examples of operating assets include the following:
- Property, Plant & Equipment (PP&E)
- Inventory
- Accounts Receivable (A/R)
- Recognized Intangible Assets (e.g. Patents, Intellectual Property)
Operating Assets Formula
The value of a company’s operating assets is equal to the sum of all assets minus the value of all non-operating assets.
Operating Assets Formula
- Operating Assets, net = Total Assets – Non-Operating Assets
Operating vs Non-Operating Assets
Unlike operating assets, non-operating assets are not considered a core aspect of operations.
Even if the asset produces income for the company, the stream is considered “side income”.
Marketable securities and related cash equivalents are examples of non-operating assets, regardless of the income generated by these types of low-risk investments.
Financing assets are indeed assets with positive economic value but are classified as non-core assets.
The monetary benefit provided by these assets comes in the form of interest income, yet a company could hypothetically continue conducting business as usual even if these securities were to be liquidated.
Hence, line items such as interest income and dividends are separately broken out on the income statement within the non-operating income / (expenses) section.