Differences Between a Tangible & an Intangible Asset
Tangible assets such as raw materials, property or cash have a physical existence. Tangible assets that have a monetary value can be passed on to heirs or sold. Intangible assets do not have a physical or material existence and can include intellectual property, patents, business contracts or trademarks. Unlike with tangible assets, the financial reward from intangible assets may not be immediate. Intangible assets may also be vulnerable to appropriation or piracy.
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Tangible Assets
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Tangible assets have a physical and financial value. Tangible assets can be divided further into two categories: financial capital or assets that have a monetary value based on their physical valuation, such as infrastructures and buildings. Other forms of tangible assets can include machinery and equipment or any payments owed to individuals. Asset managers specialize in the appraisal of tangible assets; they help protect their clients' net worth. Having tangible assets appraised is an important step for tax and financial reporting. Tangible assets that have accurate valuations can be used as collateral for financing.
Intangible Assets
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Like tangible assets, intangible assets are valuable resources although they lack a physical presence. In addition to patents, trademarks and intellectual property, intangible assets can include brand names, special skills and knowledge, software, domain names and contracts. Intangible assets constitute a significant portion of the total value of businesses and offer a competitive advantage to firms or individuals. Intellectual asset managers specialize in the valuation of intangible assets and help their clients use intellectual assets for commercial gain.
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Differences
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The main difference between tangible and intangible assets lies in the issue of ownership of resources. Because intangible resources do not have a physical presence, individuals who own intangible resources may not be able to reap the full benefits of their assets; they may be faced with problems of appropriation and misuse of their assets. Although intangible assets can be valued and used for commercial gain, similar to tangible assets, they cannot be controlled to the same extent as tangible resources.
Considerations
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One of the difficulties of protecting intangible assets lies in the fluidity of information, which can be easily spread through human interactions or movement of employees from one firm to the other. This is partly influenced by the differences in the legal frameworks that have been designed to protect tangible and intangible assets. Intangible assets can be a source of competitive advantage for firms if they develop the correct mechanisms to maximize the benefit they gain from their resources. With the protective mechanisms in place, intangible assets can become valuable in the long run.
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References
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