Guide to Hard Assets (With Definition and Classifications)

By Indeed Editorial Team

Updated September 12, 2022 | Published October 27, 2020

Updated September 12, 2022

Published October 27, 2020

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Three semi-trailers or tractor-trailers travel on a highway as the sun shines behind them.

Organizations usually invest in various assets that contribute to their revenue and the overall efficiency of their production processes. Hard assets are a particularly wise investment because they provide companies with value. Learning about these types of assets can help you understand how these differ from other assets and why they're important.

In this article, we define a hard asset, provide examples of hard assets, explore the differences between an intangible asset and a hard asset and describe how companies pay for and account for a hard asset's intrinsic value.

Key takeaways:

  • Hard assets are physical items that a business can own.

  • Hard assets have several benefits, like their ability to produce more goods and resale.

  • Hard assets differ from soft assets, as those are intangible, like patents and money owed to a company.

What is a hard asset?

Hard assets are tangible, or physical, resources or assets that possess value. Companies often purchase hard assets to increase their revenue or improve production. Additionally, businesses buy hard assets to protect themselves against the loss or depreciation of their other soft, or non-physical, assets.

Related: What Is an Asset?

Classifications of hard assets

Depending on the different businesses, they might invest in unique hard assets. There are several common classifications of hard assets businesses might purchase, including:

  • Machinery

  • Office furniture

  • Equipment

  • Vehicles

  • Buildings

  • Property

  • Oil

  • Gold

  • Diamonds

  • Silver

  • Platinum

  • Natural gas

Long-term versus short-term hard assets

Businesses can categorize hard assets as either long-term or short-term assets. Long-term hard assets, like machinery, are fixed assets because they retain their value for an extended time and usually contribute to an organization's production of services or goods. These assets typically have a life that exceeds one year. Depending on the asset, fixed assets may either depreciate slowly over time or increase in value. Real estate, for example, usually becomes more valuable throughout the years, while machinery often decreases in value after an extended period.

Short-term assets, also referred to as current assets, like inventory or raw materials, are those that companies typically use or sell much more quickly. Sometimes, existing assets are already cash, or you could convert them into cash within a year. Some examples of other current assets include:

  • Goods or products the company has for sale

  • Cash

  • Treasury bills

  • Certificates of deposit

  • Money owed to the company

  • Debt securities

  • Prepaid expenses

  • Short-term investments

  • Bank drafts

  • Checks

  • Liquid equity

Related: How the Accounting Equation Uses Equity, Liabilities and Assets

Hard assets vs. intangible assets

Unlike hard assets, intangible assets are non-physical things that have value. Finance and business professionals also call these soft assets to differentiate them from hard assets. Some common examples of these include: 

  • Franchises

  • Copyrights

  • Patents

  • Trademarks

  • Investments in securities

  • A company's brand

  • Company expertise

  • Inventions

  • Company knowledge

  • Trade secrets

  • Company reputation

  • Goodwill

There are several ways these two differ, including:

  • Value retention: While intangible assets can often fluctuate in value, hard assets tend to retain their value over time. Because of the limited supply of hard assets, they're usually valuable regardless of economic changes, appealing to customers and investors.

  • Classification: When tracking hard assets, companies usually classify them as property, plant, and equipment on their balance sheet. Companies can't liquidate intangible assets, so they generally keep them off of their balance sheet.

  • Value: While the value of a hard asset might be its cash value or ability to produce more goods, intangible assets provide additional other benefits, like credibility. For example, securities and money owed can show that a company can receive more money in the future.

Related: Intangible Assets: Definition and Examples

Advantages of hard assets

Many assets can have several benefits for a company. Here are several key advantages of investing in hard assets:

  • Multiple uses: Companies often use hard assets to produce other assets. For example, an investment in machinery can produce many goods that the company plans to sell.

  • Resale: Many hard assets have a particular dollar value. Companies can sell these assets for cash if they experience hardships.

  • Value analysis: Investors or analysts often estimate the value of hard assets when understanding the value of a company. This includes other financial factors, like cash flow and projected earnings.

  • Diversity: Hard assets can also add diversity to a company's portfolio along with standard income sources, like stocks.

  • Slow changes: While investments, like stocks, can change quickly and frequently based on factors like economic conditions, the value of hard assets might change slowly over time.

How do companies pay for hard assets?

When a hard asset is also a fixed asset, an organization's executive management team usually has to make a capital investment decision before the purchase. These assets are often long-term funding decisions because they generally involve large capital. To fund the purchase of expensive hard assets, companies sometimes create and sell new shares of stock or issue debt or corporate bonds. They might also pursue other financing opportunities, like loans from a bank, to fund the initial purchase of the assets.

Related: 54 Financial Assets Your Company Can List

Example of a hard asset

Here's an example of a company and how they might purchase and use a hard asset:

A clothing manufacturing company hopes to purchase new equipment for its inventory. Its employees invest in new machinery to produce each piece of apparel quicker. To do this, they pursue a bank loan for the initial purchase. They also purchase the materials to make the clothes and apparatus, like bolts, to keep the machinery operating correctly. These are hard assets, though the smaller components are all short-term, while the equipment is long-term.

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