{"concept":{"id":43,"slug":"assets","term":"Assets","shortDefinition":"Everything a company owns and controls at a given instant -- from cash and inventory to machinery and buildings.","longDefinition":"Assets are everything a company owns and controls at the instant the balance sheet reflects: cash, accounts receivable, inventory, machinery, buildings, brands, stakes in other companies. They're usually ordered from most to least liquid, and split into current (expected to be converted into cash or consumed within a year -- cash, inventory, receivables) and non-current (long-term assets -- machinery, buildings, intangible assets). That current/non-current distinction is the basis for calculating working capital, covered in this module's last lesson."},"relations":{"requirement":[],"contrast":[],"related":[{"concept":{"id":42,"slug":"balance-sheet","term":"Balance sheet","shortDefinition":"Financial statement that shows what a company owns and owes at a specific instant, organized into assets, liabilities, and equity.","longDefinition":"The balance sheet is one of the three financial statements: the one that answers what a company owns and owes at a specific instant, not over a period. Unlike the income statement, which is a movie of an entire period, the balance sheet is a snapshot -- a fixed image of the company's financial position on an exact date, usually the close of a quarter or a year. It's organized into two blocks that are always in balance: assets (everything the company owns and controls) on one side, and liabilities plus equity (everything it owes to third parties and to its own shareholders) on the other. That equality -- Assets = Liabilities + Equity -- isn't an accounting coincidence, it's the identity that defines a real balance sheet: everything a company owns has been financed somehow, either with debt or with its own capital."}},{"concept":{"id":46,"slug":"working-capital","term":"Working capital","shortDefinition":"The difference between current assets and current liabilities -- measures whether a company can cover its short-term obligations with its short-term resources.","longDefinition":"Working capital is the difference between current assets (expected to be converted into cash within a year) and current liabilities (due within a year). Positive working capital indicates the company has enough short-term resources to cover its short-term obligations -- a sign of immediate financial health. Negative working capital isn't always an alarm: some business models (for example, large retail chains that get paid in cash but pay their suppliers on term) operate structurally with negative working capital without any problem, precisely because their collection cycle is faster than their payment cycle. Interpreting working capital always requires understanding the specific business model, not just the sign of the number."}}],"calculatedBy":[{"concept":{"id":57,"slug":"asset-turnover","term":"Asset turnover","shortDefinition":"How much revenue a company generates per euro of assets -- a measure of efficiency, the second factor in the DuPont decomposition.","longDefinition":"Asset turnover measures how much revenue a company generates per euro of assets -- calculated by dividing revenue by total assets. It's the second factor in the DuPont decomposition, and answers a different question than margin: not how much profit each sale leaves, but how many sales the company is able to generate with the resources it has. High asset turnover indicates a company makes good use of its assets to generate revenue, regardless of its margin -- businesses with low margins, like large retail, usually offset it with very high asset turnover."}}]},"curricularPosition":[{"id":35,"moduleId":12,"slug":"what-are-assets-liabilities-and-equity","title":"What are assets, liabilities, and equity?","summary":"You understand what assets are, what liabilities are, and what equity is, and why Assets = Liabilities + Equity is always true.","bodyMarkdown":"## Objectives\n\nBy the end of this lesson you understand what assets are, what liabilities are, and what equity is, and why Assets = Liabilities + Equity is always true.\n\n## Content\n\nAssets are everything a company owns and controls at the instant the balance sheet reflects, already covered in the previous lesson: cash, accounts receivable, inventory, machinery, buildings, brands, stakes in other companies. They're usually ordered from most to least liquid, and split into current (expected to be converted into cash or consumed within a year) and non-current (long-term assets). That current/non-current distinction is the basis for calculating working capital, the topic of the next lesson.\n\nLiabilities are everything a company owes to third parties who aren't its own shareholders: bank debt, bonds issued, unpaid suppliers, accrued wages, tax obligations. Like assets, they're split into current (obligations due within a year) and non-current (long-term debt). Liabilities represent the part of the company's financing that comes from outside.\n\nEquity is the part of the company that belongs to its own shareholders: what's left of assets after subtracting all liabilities. It's made up mainly of capital contributed by shareholders and accumulated profits that haven't been distributed as dividends. It's the piece that closes the accounting identity already covered in the previous lesson -- Assets = Liabilities + Equity -- and that's why it's also called the company's \"book value\": what would, in theory, be left for shareholders if all assets were sold and all debt paid off.\n\n## Example\n\nA company with 100 in assets, financed with 60 in bank debt (liabilities) and 40 in capital contributed by its founders plus accumulated profits (equity), has a balance sheet that balances exactly: 100 = 60 + 40. If that company generated losses the following year, equity would shrink by that amount -- losses are subtracted directly from the value that belongs to shareholders.\n\n## Common mistakes\n\n- Confusing liabilities with \"everything bad\" on the balance sheet -- liabilities are simply a source of financing, not a judgment on a company's health; the reasonable level of debt depends on the sector and the business.\n- Thinking equity is \"cash in the bank\" available to the company -- it's a derived book value, not a cash item; the company's real cash sits within current assets.\n\n## Summary\n\nAssets are everything the company owns and controls. Liabilities are everything it owes to third parties. Equity is what belongs to shareholders, the difference between assets and liabilities -- and that difference is, by definition, always exact.\n\n## Self-check\n\nWhy isn't equity the same as the company's available cash?\n\nWhat happens to a company's equity if it generates losses during a fiscal year?","bodyHtml":"

Objectives

\n

By the end of this lesson you understand what assets are, what liabilities are, and what equity is, and why Assets = Liabilities + Equity is always true.

\n

Content

\n

Assets are everything a company owns and controls at the instant the balance sheet reflects, already covered in the previous lesson: cash, accounts receivable, inventory, machinery, buildings, brands, stakes in other companies. They're usually ordered from most to least liquid, and split into current (expected to be converted into cash or consumed within a year) and non-current (long-term assets). That current/non-current distinction is the basis for calculating working capital, the topic of the next lesson.

\n

Liabilities are everything a company owes to third parties who aren't its own shareholders: bank debt, bonds issued, unpaid suppliers, accrued wages, tax obligations. Like assets, they're split into current (obligations due within a year) and non-current (long-term debt). Liabilities represent the part of the company's financing that comes from outside.

\n

Equity is the part of the company that belongs to its own shareholders: what's left of assets after subtracting all liabilities. It's made up mainly of capital contributed by shareholders and accumulated profits that haven't been distributed as dividends. It's the piece that closes the accounting identity already covered in the previous lesson -- Assets = Liabilities + Equity -- and that's why it's also called the company's "book value": what would, in theory, be left for shareholders if all assets were sold and all debt paid off.

\n

Example

\n

A company with 100 in assets, financed with 60 in bank debt (liabilities) and 40 in capital contributed by its founders plus accumulated profits (equity), has a balance sheet that balances exactly: 100 = 60 + 40. If that company generated losses the following year, equity would shrink by that amount -- losses are subtracted directly from the value that belongs to shareholders.

\n

Common mistakes

\n\n

Summary

\n

Assets are everything the company owns and controls. Liabilities are everything it owes to third parties. Equity is what belongs to shareholders, the difference between assets and liabilities -- and that difference is, by definition, always exact.

\n

Self-check

\n

Why isn't equity the same as the company's available cash?

\n

What happens to a company's equity if it generates losses during a fiscal year?

","sortOrder":2,"readingMinutes":9,"difficulty":"Básico","url":"/en/academy/business-analysis/balance-sheet/what-are-assets-liabilities-and-equity"}],"graphSummary":{"root":{"type":"concept","id":"43","depthFromRoot":0,"entity":{"type":"concept","slug":"activo","term":"Activo","excerpt":"Todo lo que una empresa tiene y controla en un instante dado -- desde efectivo e inventario hasta maquinaria y edificios."}},"depth":1,"returnedNodes":1,"truncated":false,"hasCycle":false,"nodes":[{"type":"concept","id":"43","depthFromRoot":0,"entity":{"type":"concept","slug":"activo","term":"Activo","excerpt":"Todo lo que una empresa tiene y controla en un instante dado -- desde efectivo e inventario hasta maquinaria y edificios."}}],"edges":[]},"relatedNews":[],"relatedEntities":[]}