What is a Hard Asset?

A hard asset is a tangible asset; something that can be seen and touched. A hard asset has historically been the most common type of long-term asset, such as production equipment, buildings, and vehicles. Hard assets also include financial assets, such as cash and marketable securities. Hard assets can be more narrowly defined as tangible assets that have intrinsic value, such as commodities, land, and commercial real estate.

Hard assets can form the basis for the valuation of a business, but doing so excludes the value of intangible assets, such as intellectual property and branding, which can be quite valuable.

Presentation of Hard Assets

The acquisition costs of an organization’s hard assets are stated in the assets section of its balance sheet. The costs may have subsequently been reduced if the assets were judged to have been impaired. In the case of fixed assets, depreciation expense also reduces the reported asset cost, and is presented as an accumulated depreciation line item that is paired with and offsets the fixed assets line item.

Advantages of Hard Assets

Hard assets can be used as the basis for collateral, especially if they are easily converted into cash or there is a ready resale market for them. This is rarely the case for intangible assets.

Disadvantages of Hard Assets

There are several disadvantages associated with owning hard assets, which are as follows:

Cash requirements. Hard assets can be quite expensive, which means that you have to make a substantial cash investment in them. This can require a substantial investment in the business, which may reduce the return on investment of the owners.
Maintenance requirements. Hard assets usually require ongoing maintenance or periodic replacement, which calls for additional cash outflows over time.
Obsolescence. Hard assets may become obsolete before the end of their useful lives, in which case you will have to write off their remaining value. This can cause an unexpected loss on your financial statements.

These problems are the reason why so many startup businesses either build intangible assets (such as software) or outsource their manufacturing function.