What is the Difference Between Financial Assets and Physical Assets?
🆚 Go to Comparative Table 🆚The main difference between financial assets and physical assets lies in their tangible nature and the way they derive their value.
Financial Assets:
- These are intangible assets that derive their value from a contractual claim or ownership.
- They include stocks, bonds, mutual funds, bank deposits, and investments.
- Financial assets are generally more liquid than physical assets and can be more easily bought, sold, or traded.
- They are not subject to depreciation or wear and tear, and their value may fluctuate based on market conditions.
Physical Assets (also known as real assets):
- These are tangible assets with a material existence.
- Examples include land, buildings, machinery, plant, tools, equipment, vehicles, gold, and silver.
- Physical assets are subject to depreciation, deterioration, or obsolescence, which can reduce their value over time.
- They generally have lower liquidity compared to financial assets and may require additional costs for maintenance and repair.
In summary, financial assets are intangible and derive their value from contractual claims or ownership, while physical assets are tangible and have a material existence. Financial assets are generally more liquid and not subject to depreciation, whereas physical assets can lose value due to wear and tear and have lower liquidity.
Comparative Table: Financial Assets vs Physical Assets
Here is a table comparing the differences between financial assets and physical assets:
Feature | Financial Assets | Physical Assets |
---|---|---|
Type | Intangible | Tangible |
Examples | Stocks, bonds, cash | Land, buildings, machinery, vehicles |
Value | Represent claims on future cash flows generated by real assets | Used to produce goods and services |
Depreciation | Do not depreciate over time | May depreciate or lose value due to wear and tear |
Divisibility | Generally more divisible | Less divisible |
Marketability | Generally more marketable (liquid) | Less marketable (liquid) |
Information Availability | Information is often more readily available | Information may be less readily available |
Financial assets, such as stocks, bonds, and cash, are intangible and represent claims on future cash flows generated by real assets. On the other hand, physical assets are tangible and can be seen and touched, with a very identifiable physical presence, such as land, buildings, machinery, and vehicles. Physical assets are used to produce goods and services, while financial assets generally do not depreciate over time.
- Equity vs Assets
- Inventory vs Assets
- Capital vs Asset
- Liability vs Asset
- Monetary vs Nonmonetary Assets
- Human Capital vs Physical Capital
- Current vs Noncurrent Assets
- Asset Backed Securities vs Mortgage Backed Securities
- Asset Management vs Wealth Management
- Accounting vs Finance
- Asset Management vs Investment Management
- Chemical vs Physical Properties
- Money vs Wealth
- Asset Management vs Investment Banking
- Investing vs Financing Activities
- Balance Sheet vs Statement of Financial Position
- Financial Accounting vs Cost Accounting
- Business Risk vs Financial Risk
- Capital Structure vs Financial Structure