What are Fixed Assets

The role of fixed assets is solely to enable or enhance business operations. Fixed assets are a charge to liquidity, regardless of asset financing.

Fixed Assets Defined

Also known as tangible assets or capital items, fixed assets are regarded as being essential to enabling or enhancing business operations. As they are not intended for resale; there are important cash flow considerations when investing in fixed assets and the cash and liabilities associated with that.

Fixed Assets and Liquidity

Because they are not regarded as cash convertible, fixed assets are termed as "illiquid."

While the cash element for fixed assets comes out of liquidity and cash flow it does not end there. Even if part or all of their cost has been covered by asset finance, cash in respect of repayments to be made over the next twelve months will be deducted from working capital / liquidity.


The cost of fixed assets are not charged directly against profits but gradually depreciated over a period of years instead.

The charge arising from the annual rate of depreciation you elect to apply against fixed assets does not represent their tax deductible charge however. In the UK for example depreciation is first added back to taxable profit to be replaced by capital allowances.

Depreciation is not intended to write down the value of a fixed asset in line with its estimated market value. The purpose of depreciation is to charge the cost of an asset's acquisition to profits over however many years it is intended for it to function in the business.

Balance Sheet Value

Most fixed assets, with the possible exception of company cars are likely to be objectively regarded as having little or no value in the event of a forced sale. The ratio between fixed assets and working capital in the balance sheet is extremely important therefore.

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