Introduction :
Asset finance is the branch of finance that deals with the management of all kinds of financial assets; a financial asset is an economic resource which is issued by the economic institutions, any possessions that constitute a positive economic value can be considered as a financial asset. They can both be tangible and intangible and are also classified in to various sub categories based on their characteristics.
CHARACTERISTICS OF FINANCIAL ASSETS
They can be defined or characterized by these three parameters or features :
- Liquidity : Liquidity can be defined as the ability to convert any resource in to cash. Investors, companies and even governments often need to liquidate their assets to get sufficient amount of capital, needed to support various functionalities of the economy. The cash obtained is mainly used to pay off debts or to invest in new business ideas.
- Performance of an asset : It is determined by the amount of compensation that an asset can generate for the investor. For example, by investing in stocks of various companies, share holders can get dividends in return. If the dividend obtained is high, then the assets (stocks) will be termed as a 'performing-asset'.
- Risk : It can be defined as the probability or possibility of facing a loss in the investment of the economic resources. The risk of a financial asset depends on two basic factors: the solvency of the issuer and the guarantees associated with the financial asset.
Importance of asset finance
This field of commercial activities is very important for any financial institution. The performance and the sustainability of a company depend on the assets to liabilities ratio. If the economic resources of the institution are less than the financial obligations, then the institution will not be able to repay the debt collected from various sources. In such a situation the company can even be bankrupt, resulting in adversely affecting the economy of the nation.
Moreover the shareholders and the employees of the company will lose their money and jobs respectively. Thus, every business corporation has a management team which is responsible for looking after the economic resources and also finding out ways to increase them so that the financial obligations can be paid off in an effective manner.
Even the governments of countries have asset finance management departments to keep a track of the total debts and the economic resources of the country, in order to sustain a favourable economic growth.
Rajot Chakraborty