The assets that will benefit the organization for much more than a year, whether they are tangible or intangible, are called long-term assets. Long-term assets can be both tangible and intangible, such as a company’s brand or patent, which cannot be touched. Long-term assets are recorded on the balance sheet at the acquisition price, which may or may not reflect the asset’s current worth.
Long-term assets are differentiated from current assets, which can be consumed, used, sold, or expended within one year through normal company operations. Fixed assets such as a company’s property, plant, and equipment (PP&E) are examples of long-term assets, also known as non-current assets.
The cost to run the factories does not vary much, regardless of the firm’s monthly or annual output, and they account for a large amount of the firm’s cost of goods sold (COGS). The factories would be considered long-term investments. Although there is no conventional accounting procedure for determining whether an asset is a long-term asset, it is widely understood that such assets must have a useful life of more than a year.
Long-term asset changes on a company’s balance sheet may indicate capital investment or liquidation. If a company is focused on long-term growth, revenues will be used to fund more asset purchases that will boost long-term earnings. Investors should be cautious, however, that certain firms will sell long-term assets to earn cash for short-term operational needs or even to repay loans, which might be an indication that the company is in financial trouble.