What is an Intangible Asset?

An intangible asset is an asset that lacks a physical substance.

How Does an Intangible Asset Work?

For example, goodwill, patents, trademarks and copyrights are intangible assets. None of these assets can be physically touched, but they can still have value.

The line item for intangible assets is found on the balance sheet. Though goodwill is considered an intangible asset, it's often listed as a separate line item.

[InvestingAnswers Feature: Financial Statements for Beginners -- The Balance Sheet]

Why Does an Intangible Asset Matter?

Intangible assets can be a significant percentage of a company's total assets, and therefore have a big impact on a firm's book value. In most cases, an analyst calculating book value will only include those intangible assets that can be separated from the company and sold. Goodwill cannot be separated from the company, so it is generally not included in book value calculations. But a valuable patent can be sold, and would be included in book value.

To learn more, click here to see A Simple Method for Calculating Book Value.