Edited by Bruce A. Seaman and Dennis R. Young
Chapter 5: Asset Composition
Woods Bowman Introduction Assets are resources – factors of production, as economists say. In the for-profit sector, which assets are used and in what proportions are determined by the producer’s choice of (1) product, defined to include its level of quality, and (2) the technology used to produce it. Nonprofit status is a legal construct, not a production process. But, in the Coasian view of a firm as a ‘nexus of contracts’, the legal structure may have a profound effect on the way assets are mobilized in production. The median nonprofit owns $204 000 in total assets but the range is enormous. Ten percent own less than $12 500 whereas 10 percent have more than $4.9 million.1 Even within industry groups, there is considerable variation in the mix of assets.2 What we think we know Most of what we think we know comes from the literature on business finance and focuses on the classic issue of liquidity. New strands of inquiry are beginning to develop using other ideas from the business literature such as risk control and the closely related concept of asset partitioning. Liquidity Current assets help finance day-to-day operations. They consist of cash and cash equivalents or assets that can be converted to cash in less than one year without discount from their fair market value. They include cash, cash equivalents (savings accounts, money market funds) receivables (money owed to the organization), inventory, marketable securities and prepaid expenses. There are significant differences between for-profit businesses and nonprofits in the...
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