Core assets are key to the function of a company or investment portfolio. It is not possible to operate without them, and they are retained through proceedings like bankruptcy as long as possible in case a resolution might be achieved. By contrast, non-core assets may be important, but not critical to function, and thus can be divested if a company no longer needs them.
Operating companies may include things like manufacturing facilities and equipment in their core assets. They need these things in order to continue working, while things like artwork on the walls of corporate headquarters or accessories used to make offices more pleasant are not as critical. These things are still assets, and may in some cases be very valuable, but they can be sold without affecting operations. In calculations of the value of assets and relative accessible liquidity, firms can consider which things they could sell off while still remaining functional.
When a company gets rid of its core assets, this is a signal that it is preparing for closure. In bankruptcy proceedings, companies may hold onto important equipment and facilities while they determine whether they can reorganize to start running again. They can also keep assets together in the hope of being more marketable so they can be sold as single units to pay off their creditors. Once these assets are broken up in sales, it may be difficult or impossible to reassemble them, indicating that the company as investors know it is coming to an end.
In a mix of investments, core assets are critical to a portfolio’s function, although a mixture of non-core assets keeps the portfolio diverse. A company basing investment on telecommunications, for example, might have several key firms it uses as an anchor for its investment portfolio. These can shift over time, but provide the backbone of the portfolio with stable, steady returns over time. By contrast, non-core assets are routinely sold and changed in order to adapt to shifting market conditions.
Firms taken into trust as part of bankruptcy proceedings or other situations where government intervention is needed may be carefully evaluated to identify the most important assets. An impartial third party without a stake in the outcome can determine which assets should be sold to generate funds, and which should be retained to keep the company functional. In the event the firm is to be dissolved, the core assets can be sold off.
