More of this Feature • Part 1: Lesson 3 Main • Part 2: How to Get Statements • Part 3: What's a Balance Sheet • Part 4: Typical Balance Sheet • Part 5: Current Assets • Part 6: Receivables • Part 7: Receivable Turns • Part 8: Inventory • Part 9: Inventory Turns • Part 10: Inventory Example • Part 11: Prepaid Expenses • Part 12: Current Liabilities • Part 13: Working Capital • Part 14: WC Per Dollar of Sales • Part 15: Negative Work. Cap • Part 16: Current Ratio • Part 17: Quick Ratio • Part 18: Long Term Investment • Part 19: Property, Plant, Equip. • Part 20: Intangible Assets • Part 21: Goodwill • Part 22: Deferred Charges • Part 23: Debt, Debt to Equity • Part 24: Other Liabilities • Part 25: Minority Interest • Part 26: Shareholder Equity • Part 27: Book Value • Part 28: Com. & Pref. Shares • Part 29: Cap. Surplus, Reserve • Part 30: Treasury Stock • Part 31: Retained Earnings • Part 32: Formula & Calculations • Part 33: Putting it all Together • Part 34: Segment 2

Related Resources • Investing Lesson 1 • Investing Lesson 2 • Investing Lesson 3 • More Investing Lessons

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Long Term Assets

Everything we've discussed up until now has been a current asset or liability.  Now, we are going to take a look at the long term assets that are found on the balance sheet.  These are the things that a business owns but can't be used to fund day-to-day operations

Long Term Investments

Long Term investments and funds are investments a company intends to hold for more than one year.  They can consist of stocks and bonds of other companies, real estate, and cash that has been set aside for a specific purpose or project.  In addition to investments a company plans to hold for an extended period of time, Long Term Investments also consist of the stock in a company's affiliates and subsidiaries.

The difference between Short Term and Long Term investments lie in the company's motive for owning them.  Short term investments consist of stocks, bonds, etc. a company has bought and will sell shortly.  The investments made under long term investments may never be sold.  An excellent example would be Berkshire Hathaway's relationship with Coca-Cola.  Berkshire owns 200 million shares of the soft-drink giant, and will most likely continue to hold them forever, regardless of the price they are selling for in the open market.

Carrying Values of Stock Investments

As you now know, when a business purchases common stocks as an investment, they will go into either the Short Term or Long Term Investment categories on the balance sheet.  These are normally carried on the balance sheet at cost or market value (whichever is less).  This means that most of the time, the stocks the the company owns are are worth far more than they are on the balance sheet (for example, if a business owned 50,000 shares of Sprint and they paid $10 per share, they would have $500,000 on the balance sheet under either short term or long term investments.  If Sprint rose to $35 per share, the value of their holdings would be $1,750,000, yet the balance sheet would continue to carry $500,000.  Thus, the difference of $1,250,000 would not be included in the book value of the company.  (This is a prime example of how financial statements are only the beginning of the valuation process.  They have their limitations, but without them, we would have no basis to calculate intrinsic value.)
 

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