Today we will talk about the analysis of the company's business management characteristics.
The first question is, let’s talk about the identification of heavy assets and light assets enterprises. You may often hear such comments or comments in daily business management or daily communication: This company is a light asset enterprise, and this company is a heavy asset enterprise. When we hear these words, do we have a concept: under what circumstances are enterprises called light assets and under what circumstances are enterprises called heavy assets? I tell you that in the traditional sense, when we say that an enterprise is a heavy asset enterprise, it means that the fixed assets of the enterprise account for a relatively high proportion of total assets. In the most basic terms, in the structure of operating assets, cash funds are removed because cash funds are not clearly explained. Fixed assets account for a relatively large proportion of the operating assets of the enterprise, inventory, accounts receivable, notes receivable, and advance payments account for not high proportion. We generally say that such enterprises are heavy asset enterprises. If the company does not have many fixed assets and has a lot of inventory, like some commodity circulation companies and logistics companies, right? There are not many fixed assets, but there are quite a lot of inventory, or there are more debts, at this time, we think that your company has light assets, strong liquidity, heavy assets, and weak liquidity. This is probably what everyone's perception in the past.
has changed now, because from a conceptual perspective, it is difficult to make a theoretically absolute division between light assets and heavy assets. But everyone just said this, everyone understood this in their daily life. How far has it changed now? First of all, in this asset, in addition to operating assets, there are also investment assets. So when we discuss the company's emphasis on assets and light assets, we do not discuss investment, but only discuss operations, because lightness and heavyness are the concept of operation, and it doesn't matter if you invest, will your long-term investment be heavy? Short-term investment is lighter? This is not the concept either. So we still talk about it this way, lightness and heavyness are only about business. This is the first one, I will tell you.
The second one, the connotation of assets should have changed a lot. It turns out that heavy assets are heavyweight fixed assets, what we just talked about. Now, in addition to fixed assets, this asset should also include projects under construction, because projects under construction are the reserve force of fixed assets, they should also include intangible assets, goodwill, and productive biological assets, right-of-use assets, etc., such non-current assets related to operations. Please note that it is not just fixed assets. Where do some companies focus on their assets? Focus on goodwill and intangible assets. There are not many fixed assets. Everyone has paid attention to this situation. So now when talking about the concept of heavy assets, you need to expand your horizons to other non-current operating assets other than fixed assets. This is a concept.
Another concept, the meaning of lightness and heaviness. Last year, Luckin Coffee reported its financial cost in 2020, so some people are studying what is going on with Luckin Coffee’s business model? According to some people's research, Luckin Coffee's business model is a business model of light asset management. As a light asset, why is Luckin Coffee light? He said that compared with Starbucks, Luckin Coffee is tall and superior. Starbucks feels very decent when sitting there. Drinking coffee and listening to music, right? Looking at the scenery, it's great. It is said that Starbucks has a heavy business location, and the investment in this area is relatively heavy. What about Luckin Coffee? If you do a small position, take it away directly. In this way, my assets are relatively light. Light assets are often more liquid, and heavy assets are indeed slow to flow and turnover.
Today I will tell you the latest division of asset severity. See you next time.
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