What is Tangible Asset?

A tangible asset is an asset that has a definite monetary value and usually exists in a physical form. Tangible assets can always be exchanged for some monetary value, although the liquidity of different markets may differ. Tangible assets are different from intangible assets, which have a theoretical value rather than a value based on transactions.

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A company’s assets play a crucial role in determining its net worth and day-to-day activities. Keeping track of assets and their impact is a major reason why businesses have balance sheets. The balance sheet records assets and ensures that the equation assets minus liabilities equals shareholders’ equity is balanced.

Businesses own two kinds of assets: tangible and intangible. Tangible assets have a specific value and are physical objects used in daily operations. These assets can be touched and are essential for the company’s activities. Many tangible assets share similar traits.

Some Types

Physical assets can be classified as current or long-term assets. Current assets may not always be physically present but they have a definite value for transactions.

Fixed assets, also known as long-term assets, make up the second part of the asset section on the balance sheet. These assets have lower liquidity and often require more capital investment. Typically, long-term assets are tangible and larger in size.

Tangible assets are listed on the balance sheet at the cost to buy them. Long-term tangible assets lose value over time due to depreciation. Depreciation is a noncash entry on the balance sheet that decreases asset value gradually. Current assets are turned into cash within a year and do not require devaluation. Inventory, for instance, is a current asset typically sold within a year.

  • Inventory
  • Equipment/Machinery
  • Furnishing and Fixtures
  • Land
  • Buildings

How to Value

Three main factors determine how a tangible asset is valued: its uniqueness, location, and condition. These factors will influence the best valuation method to use.

Specific Appraisal

Companies frequently bring in an outside appraiser to determine the exact value of their tangible assets. These appraisers are usually specialists in a particular area, such as collectibles or real estate. They assess the asset’s condition and consider external factors that could affect its worth.

After completing an appraisal, the appraiser typically provides an appraisal report. This report details the state of the asset; for real estate, separate sections are usually included for the interior and exterior conditions. The report will mention upgrades, construction standards, market trends, and any significant issues affecting the value of the asset.

Liquidation Price

One might say that the worth of something tangible is the amount of money it can be sold for in the market. According to this logic, the value of a tangible asset is the price it would fetch if it were sold. Regardless of any official evaluation or insurance assessment, a company may consider a tangible asset to be valuable only if they can sell it right away.

The liquidation price is typically lower than the appraiser’s value due to various factors. One reason is the additional costs that a company includes in the liquidation price. Another reason is that certain assets are hard to sell quickly, leading the company to offer significant discounts to attract buyers, which may not accurately represent the building’s true value in a regular sale.

Replacement Cost

Insurance carriers primarily use the third type of valuation method in their policies. They rely on replacement cost to determine the value of a building. This ensures that if a claim is made, the policyholder will receive funds to replace their asset, rather than just compensation for its actual full value.

Pros of Tangible Asset

  • May be more stable investment due to consistent underlying use
  • Often has real world application that increases its value
  • May generate cashflow if rented out for use
  • May have low correlation to other asset classes due to difference in underlying asset profile

Cons of Tangible Asset

  • May be subject to physical damage (via nature or intentional human destruction)
  • May become obsolete if more advanced tangible assets are introduced
  • May be more subject to theft due to potentially easier access
  • Often requires additional expenses to store, manage, and protect goods


Companies possess various assets, and among them are tangible assets. Tangible assets are physical objects that offer future economic advantages to the company and can be physically touched. While tangible assets have the advantage of practical use in the real world, they also require extra attention for their protection and maintenance.