A business is considered "asset-heavy" when it requires substantial investment in capital such as factories, machinery, and processing plants to generate revenue. In contrast, "asset-light" businesses have minimal need for such investments. I analyzed the financials of the top 40 companies in mining—the ultimate asset-heavy industry—and compared them to a selection of popular asset-light companies. So, what can we learn? In asset-heavy businesses like mining, a significant portion of revenue goes toward keeping core operations running (cost of revenue). This includes running machinery, processing plants, and ensuring the continuous flow of products. On the other hand, companies like Google and Facebook require far fewer resources to keep their product (well…ads) going. However, the trade-off for asset-light companies is the need for large bureaucracies of administrators, salespeople, and engineers to stay competitive. As a result, their administrative and general expenses, including R&D, are substantial. Not surprisingly, asset-heavy companies like miners face high depreciation and amortization costs as they must pay off the mines, exploration projects, and equipment essential to their operations. At the end of the day, successful asset-light companies often capture more profit than their asset-heavy counterparts. What might interest investors even more is the return on capital invested. Asset-light companies, the successful ones anyway, tend to generate a very high return on assets thanks to the relatively small amount of capital they deploy. So why would anyone invest in mining or other asset-heavy industries? Here are my top three reasons: 1. A barrier to entry: The high capital requirements in asset-heavy industries create a significant barrier to entry, effectively protecting against competition. Building and operating a mine is an enormous undertaking, while a tech startup could be created in a dorm room. This makes asset-heavy industries less prone to disruption. 2. Reliable demand: A mining company producing copper, gold, or iron is almost guaranteed to find a market for its products. The likelihood of a sudden and large drop in global demand is low. By contrast, asset-light companies face the constant risk of rapid disruption, which can jeopardize revenue streams. Mining companies, therefore, tend to enjoy more stable revenue. 3. Cost flexibility: Cost of revenue is often highly variable, meaning it can be adjusted in response to demand fluctuations. For example, a mining company can scale back operations or even put a mine on "care and maintenance" with minimal costs if times are bad. Asset-light companies, however, must manage slower-moving fixed costs, such as engineering teams and attractive office space, which makes it harder to quickly adapt when demand declines. Instead, they must absorb losses or seek additional capital to stay afloat.