Asset Base

Definition: An asset base is generally the total present value of a firm’s assets, loan, or derivative security’s value at the time of purchase, reduction of credit risk, or maturity. An asset base includes cash and cash equivalents.

Asset bases can include real estate, inventory, inventory-handling equipment, inventory software products, energy services, corporate bonds, commodity futures contracts, operational services, and other assets in any industry or geographic area that provide a return and are available for disposition as needed or desirable at the time of purchase.  Vendors offer asset bases as marking rates or would-be sell prices on their behalf, providing market participants with price quotes that include estimated costs and expected revenue streams (usually negotiated fees).

The asset base is one of the most important components in forming an overall view of a company’s financial strength. A strong asset base can increase a company’s cash generation capacity, provide access to capital markets, reduce dependence on short-term funding sources and help attract new capital when needed. The key here is that an asset base should complement, not substitute for, a strong financial performance. As a result, strong economic indicators should be combined with strong asset base measures to provide investors with a detailed picture of a company’s performance and potential future outcomes.

The asset base is important because it allows you to position your company for success in an increasingly competitive marketplace. By establishing strong relationships with key industry stakeholders, you can leverage your assets for future growth and profitability.

The asset base is the total value of all assets a company owns – tangible assets (real estate, plant, machinery, equipment, inventory) plus any money paid in dividends or capital gains during the year. This value is called book value because it is the price a buyer would pay to purchase the stock at its current market value (the amount that the stock would fetch if it were sold today – this is what it would cost to buy the company if it were an existing company and not a new start-up).

Book Value accurately reflects the value of an asset when considered in the context of all current and historic assets and liabilities. As a result, book value is generally much less volatile than Asset Base and is more suitable for investors who want a long-term investment in companies.

Asset bases are markets. They include tangible things like houses, cars, and inventory, including intangible assets like credibility and trust. Asset bases provide an anchor to value that encourages investors to underspend the unsupported expectations of future cash flows associated with assets. There is a growing recognition that market values of intangible assets such as brands and brands’ reputations should be calculated using unknown knowledge about the world; instead of basing what we value on past performance.