Renaissance for LEADERS

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Tag: Asset

Amortization

1. A tax deduction for the gradual consumption of the value of an intangible asset. For example, if a company spends $10 million on a 10-year license, it amortizes the expense by deducting $1,000,000 from its taxable income per year for 10 years. Often used interchangeably with depreciation, which is the same thing for tangible assets. 2. The spreading of loan repayments over a given period of time.

Asset Class

A grouping of similar types of investments which have similar financial characteristics and behave similarly in the marketplace.

There are five main classes which are:

  1. Equities (stocks): Owning a share of a company.
  2. Fixed Income (debt): Lending money to a company or government for interest.
  3. Cash or equivalents: Money in bank accounts, or in your pocket, foreign exchange.
  4. Real Estate: Owning something physical like property.
  5. Commodities: Natural resource commodities and precious metals like gold, platinum, silver, etc.

Depreciation

The gradual reduction of an asset’s value. A non-cash expense, which is often a tax write-off. A person or company may reduce their taxable income by the amount of the depreciation on the asset. Because this is an accounting function, it often has little resemblance to the asset’s useful life. The owner of the asset continues to use it tax-free after its value has been depreciated to nothing.

Leverage

1. The process of applying a small force that multiplies into a large effect. 2. The action of a lever. 2. The mechanical advantage or power gained by using a lever. 3. Power or ability to act effectively or to influence people. 4. The use of a small initial investment to gain a relatively high return. Using a small amount of your own money to make an investment of much larger value, thus gaining significant financial power. For example, if you borrow 80% of the cost of a property, you are using the leverage to buy a much more expensive asset than you could have afforded by paying cash. If you sell the property for more than you paid for it, the profit is yours. The reverse is also true if you sell at a loss, the amount you borrowed is still due and the loss is yours. Buying stock on margin is a type of leverage, as is buying a futures or options contracts. Leveraging can be risky if the underlying asset doesn’t perform to your expectations.

Licensing

Renting or leasing an intangible asset. It is a process of creating and managing contracts between the owner of the asset and a company or individual who wants to use the asset in association with a product, for an agreed period of time, within an agreed territory, for an agreed payment.

Options

A type of derivative security that gives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a given date.

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