An asset in

economic theory Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyze ...

is a

durable good In economics, a durable good or a hard good or consumer durable is a good that does not quickly wear out or, more specifically, one that yields utility over time rather than being completely consumed in one use. Items like bricks could be cons ...

which can only be partially consumed (like a portable music player) or input as a

factor of production In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilized amounts of the various inputs determine the quantity of output according to the re ...

(like a cement mixer) which can only be partially used up in production. The necessary quality for an asset is that value remains after the period of analysis so it can be used as a

store of value A store of value is any commodity or asset that would normally retain purchasing power into the future and is the function of the asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. The most ...

. As such, financial instruments like corporate bonds and common stocks are assets because they store value for the next period. If the good or factor is used up before the next period, there would be nothing upon which to place a value. As a result of this definition, assets only have positive futures prices. This is analogous to the distinction between consumer durables and non-durables. Durables last more than one year. A classic durable is an automobile. A classic non-durable is an apple, which is eaten and lasts less than one year. Assets are that category of output which economic theory places prices upon. In a simple Walrasian equilibrium model, there is but a single period and all items have prices. In a multi-period equilibrium model, while all items have prices in the current period. Only assets can survive into the next period and thus only assets can store value and as a result, only assets have a price today for delivery tomorrow. Items which depreciate 100% by tomorrow have no price for delivery tomorrow because by tomorrow it ceases to exist. The subfield of

asset pricing In financial economics, asset pricing refers to a formal treatment and development of two main pricing principles, outlined below, together with the resultant models. There have been many models developed for different situations, but correspon ...

(or valuation) is the financial evaluation of the value of such assets; the primary method used by today's

financial analyst A financial analyst is a professional, undertaking financial analysis for external or internal clients as a core feature of the job. The role may specifically be titled securities analyst, research analyst, equity analyst, investment analyst, o ...

s is the

discounted cash flow The discounted cash flow (DCF) analysis is a method in finance of valuing a security, project, company, or asset using the concepts of the time value of money. Discounted cash flow analysis is widely used in investment finance, real estate devel ...

method. With this method, an asset's future

cash flow A cash flow is a real or virtual movement of money: *a cash flow in its narrow sense is a payment (in a currency), especially from one central bank account to another; the term 'cash flow' is mostly used to describe payments that are expected ...

s are either assumed to be known with certainty (as in a

treasury bond United States Treasury securities, also called Treasuries or Treasurys, are government debt instruments issued by the United States Department of the Treasury to finance government spending as an alternative to taxation. Since 2012, U.S. gov ...

which is risk free) or estimated. These future cash flows are discounting used

present value In economics and finance, present value (PV), also known as present discounted value, is the value of an expected income stream determined as of the date of valuation. The present value is usually less than the future value because money has int ...

s. The Flow of Funds tables from the

Federal Reserve System The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...

provide data about assets, which are tangible assets and financial assets, and liabilities. The difference, assets minus liabilities, is net worth.

External links

Balance sheet tables, statistical releases of Federal Reserve System

External links

See also