Tangible Assets & Intangible Assets - Explained in Hindi - YouTube

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Namashkar, my name is Mukul and welcome to Asset Yogi

where we unlock the knowledge of finance rather than locking it

This video is a part of a series in which we are discussing financial analysis

Initially, we are discussing the building blocks or basics of financial analysis

In the last video, we discussed the differences between fixed assets and current assets

Tangible means something you can touch or feel

Similarly, the assets to which we can touch or feel are tangible assets

and Intangible assets are the assets to which we cannot touch and feel

but we can derive their value in any form

So which assets are tangible assets, what are the pros and cons of these?

Which assets are intangible assets, what are their pros and cons?

We are going to discuss this in this video

So watch this video till the end. Let's switch to the blackboard.

So let's understand the differences between tangible and intangible assets

If we talk about the definition,

Tangible assets are the assets to which we see physically, can touch and feel

and you use them in your business to produce goods and services

That means these assets produce income for you

Whether long term or short term assets

Long term assets include fixed assets and short term assets include current assets

I already made a video on the differences between fixed assets and current assets

So you can watch my detailed video

For now, we'll talk about current assets in more detail

because people get confused that whether current assets fall in tangible or intangible assets

So if we talk about the examples, tangible assets include land and building

If you have any factory, warehouse, office, or land

then these fall under tangible assets

Plant, machinery, equipments that you use in your office or company, comes under tangible assets

Definitely, you can touch and see them and they produce income for you as well

If you use any type of vehicles in your office or company, these also come under tangible assets

Furniture and fixtures are also tangible assets

Inventory also fall under tangible assets

Be it raw material, work in progress, or finished goods

Since you can touch and feel them, so these are also tangible assets but

in the last video, we discussed that inventory is a part of current assets

So it is under tangible assets

And the assets we discussed here, come under fixed assets

So fixed assets and current assets, both fall under tangible assets

Also, I have not written some examples of current assets here but those also fall under tangible assets

Be it accounts receivables, short term investments

Be it loans and advances given by you

All these falls under tangible assets

Now, what comes under Intangible assets?

Intangible assets are the non-physical assets

that add value in your company or business in any form

They produce income for you directly or indirectly

and they increase the value of your company

With that, there is one more condition that these should not be any financial instruments

Earlier, financial instruments were used to be in materialised form, maybe in the form of any certificate

But nowadays, all the investments are in dematerialised form

So sometimes people get confused that whether a particular certificate or investment will fall under tangible or intangible assets

So any financial instrument, be it a stock certificate

investments, any type of loans and advances

accounts receivables also fall under tangible assets

These are all the current assets

or it can be long term investments

But these will fall under tangible assets for accounts purposes and don't get confused here

So the question arises that what comes under intangible assets?

For example, if you have any patent.

Like pharma companies has patents for 10-20 years

No one else can produce a drug like that

Like there is a 'check' sign of Nike which is their trademark

So no one else can use it because it is a trademark

Similarly, there are copyrights in the music industry so no one can recreate or copy that particular music exactly

without the permission of the music labels

Similarly, you have goodwill or brand which you cannot touch or feel

but its value is very high

Nike is not only selling on its trademark. Instead, it is a huge brand

so it commands a premium for it

Similarly, there are many brands that command a premium

And many times, when a company is sold out, the company which is acquiring gives some extra money

and that is for the goodwill or brand

So that is also an intangible asset that you cannot touch or feel

Then there are internet assets like domains, websites, videos

These all come under intangible assets

If you have any licencing agreement.

Let's say you have an agreement to operate at a place for 10-20 years and you got a licence

then that is also an intangible asset

There may be some proprietary items of your company

For example, it can be blueprints

In automobile companies, they have their blueprints and designs

So those are the intangible assets

There are proprietary software, products

These are the intangible assets

Nowadays, e-commerce companies have data banks

which is a big intangible asset with them

Medical records, educational content with a company

All these are intangible assets

which you cannot see in fixed form

but they add extremely high value to a company

Let's see some more differences

If we talk about liquidity, you can easily sell tangible assets and convert them into cash easily

But intangible assets are difficult to sell

When the whole company is sold, then only its value is derived

Otherwise, if you will go to sell individual licence, you may not get the buyers

So this is a problem with the intangible assets that these cannot be easily sold

then if you want to borrow a loan from the bank,

then does it accept the tangible assets in the form of collateral?

Yes, it does

Be it your fixed assets or current assets, you get a loan against both

So you can keep tangible assets as security

But neither you can keep intangible assets as security nor you get a loan on it

If we talk about insurance, tangible assets can get destroyed, lost, stolen

thats why these can be ensured

whereas, intangible assets cannot be ensured

Now let's talk about the reduction in value

Tangible assets, be it land, building, vehicle, plant and machinery

The value of all these assets depreciate over a period of time

So value gets depreciated and you have to depreciate the value in the accounts as well

Except for land, all the other assets are depreciated. So a depreciated value is taken

The value of intangible assets also decrease over a period of time

Let's say you got a licence for 10 years

Or you have any patent with expiry after 10 years

So you will decrease its value slowly

This is called Amortisation in accounting terms

There is a salvage value of the tangible assets. What is a salvage value?

If you completely depreciated an asset.

Let's say it got completely depreciated within 5 years

But even after 5 years, the value of the asset is not 0

It still has a residual value and you're deriving value from it and generating income through it

Let's say you depreciated a vehicle completely after 5 years but it still holds some value

That value is called salvage value or residual value

So there is a salvage or residual value of tangible assets

And there is no residual value of intangible assets

If I talk about the example that in which type of companies, tangible assets are more

If we talk about the examples

Manufacturing includes too many tangible assets

Let's say Tata Motors or any other automobile company involves a high number of plant and machinery

Lands, buildings, etc. So there are many tangible assets

Similarly, there are many tangible assets in the oil and refinery industries

For example, you might have heard that Reliance has the biggest refinery in the world in Jamnagar

So there are many tangible assets

If we talk about the infrastructure and construction industry, there are many big projects

and a lot of construction instruments are used in this

Let's say, L&T has a large number of tangible assets

If we talk about intangible assets, technology companies have more intangible assets

If we talk about Google, Apple, Facebook,

they have proprietary technology which is an intangible asset

The entertainment and media industry consists of too many intangible assets

because they have copyrights and trademarks

For example, If T-Series produces any music, you cannot copy and publish that music or cannot sell it

You cannot copy and publish the content of Times Internet

There are many companies like this in the media and entertainment industry

Then I already gave example of pharma companies

They also have patents for drugs for 20-25 years

because they have to recover the invested money

For example, Pfizer, Cipla

Intangible assets with these companies are also very high

So I think you might have got an idea about the differences between tangible and intangible assets after watching this video

and we also discussed the finer details

The current assets like accounts receivables or short term investments

These are also included in tangible assets and not in intangible assets

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