What is a ‘Hard Asset’
A hard asset is a tangible or physical item or object of worth that is owned by an individual or a corporation. It is listed on the balance sheet as an asset and can be used by analysts to calculate a company’s value. Examples of hard assets include property, plant and equipment (PP&E), inventory, and other such items. Inventory is an example of a hard asset that is considered a current asset because it will likely be used within the next year. Long-lived hard assets, such as property, plant, and equipment, are generally utilized over a long period of time and recorded on the balance sheet at their historic value then depreciated based on the applicable schedule.
BREAKING DOWN ‘Hard Asset’
Hard assets often refer to items such as buildings, cash or other fungible assets. Hard assets are considered particularly valuable because they can be used to produce or purchase other goods or services. They can also be sold to generate cash in the event the company has financial difficulties. When analysts calculate a company’s intrinsic value, a portion of this underlying value is derived from the value of its hard assets, partially because of their ability to be sold in the event of a liquidation.
Example of a Hard Asset
Company XYZ manufactures widgets. They purchase a new widget press, a long-lived asset used in the manufacture of widgets. They also purchase petroleum and dry ice, two of the key ingredients used in widget mix. These are all considered hard assets. The widget press is a long-lived hard asset. The petroleum and dry ice, since they are raw materials used to produce inventory, are considered current hard assets. The patents on the widget press and the widget mix, however, are intangible assets.