non-current assets

(noun)

assets and property not easily converted into cash; a fixed/non-current asset can also be defined as an asset not directly sold to a firm's consumers/end-users

Examples of non-current assets in the following topics:

  • Alternate Sources of Funds

    • Funds typically originate from company sales and earning revenue; other cash sources include the sale of non-current assets and company stock.
    • However, a business can also generate cash funds from other sources as well, such as the sale of non-current assets and through the sale of company stock.
    • Cash inflows from investing activities involve cash flows associated with non-current assets:
    • Sale of a non-current asset (assets, such as land, building, equipment, marketable securities, etc.)

  • Assets

    • In financial accounting, assets are economic resources.
    • Simply stated, assets represent ownership of value that can be converted into cash (although cash itself is also considered an asset).
    • Two major classes are tangible assets and intangible assets .
    • Tangible assets contain various subclasses, including current and fixed assets.
    • Current assets include inventory, while fixed assets include such items as buildings and equipment.

  • Debt Utilization Ratios

    • If Company F has $100,000 in assets, and $10,000 in total liabilities, it would have a debt ratio of 10,000 / 100,000 = 10%.
    • Company G, on the other hand, may have $100,000 worth of assets and $200,000 worth of liabilities.
    • The debt ratio is a financial ratio that indicates the percentage of a company's assets that are provided via debt.
    • It is the ratio of total debt (the sum of current liabilities and long-term liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as "goodwill").
    • DSCR = (Annual Net Income + Amortization/Depreciation + Interest Expense + other non-cash and discretionary items (such as non-contractual management bonuses)) / (Principal Repayment + Interest payments + Lease payments)

  • Liquidity Ratios

    • Liquidity ratios measure how quickly assets can be turned into cash in order to pay the company's short-term obligations.
    • Liquidity ratios measure a company's ability to pay short-term obligations of one year or less (i.e., how quickly assets can be turned into cash).
    • If current liabilities exceed current assets (i.e., the current ratio is below 1), then the company may have problems meeting its short-term obligations.
    • If the current ratio is too high, the company may be inefficiently using its current assets or its short-term financing facilities.
    • A firm may improve its liquidity ratios by raising the value of its current assets, reducing the value of current liabilities, or negotiating delayed or lower payments to creditors.

  • Sample Evaluation

    • ROA (Return on Assets) = Net Income / Total Assets = 1,057 / 13,840 = 7.6%
    • BEP Ratio = EBIT / Total Assets = 1,810/13,840 = 0.311
    • Current Ratio = Current Assets / Current Liabilities = 5,240/3,500 = 1.497
    • Quick Ratio = (Current Assets-Inventories) / Current Liabilities = (5,240 - 2,010) / 3,500 = 0.923
    • Despite having a current ratio of about 1.0, the quick ratio is slightly below 1.0.

  • Sample Income Statement

    • SGA is usually understood as a major portion of non-production costs, in contrast to production costs like direct labor.
    • Depreciation / Amortization: The charge with respect to fixed or intangible assets that have been capitalized on the balance sheet for a specific accounting period.
    • Other revenues or gains: Revenues and gains from non-primary business activities (rent, patent income, goodwill).
    • It also includes gains that are either unusual or infrequent, but not both (gain from sale of securities or gain from fixed asset disposal).
    • Income tax expense: Sum of the amount of tax payable to tax authorities in the current reporting period (current tax liabilities/tax payable) and the amount of deferred tax liabilities or assets.

  • Basic types of accounts

    • Asset accounts: represent the different types of economic resources owned by a business, common examples of asset accounts are cash, cash in bank, equipment, building, inventory, prepaid rent, goodwill, accounts receivable.Assets are usually broken down into three categories: Current assets, fixed assets, and intangible assets.
    • Current assets are assets which could be converted to cash fairly quickly if necessary, certainly in less than a year.Examples of current assets include cash, cash in bank, inventory, prepaid rent, and accounts receivable.Fixed assets are assets of a more permanent nature like manufacturing equipment, buildings owned, and the like.Intangible assets, like goodwill, are monetary values assigned to intangibles like a brand name.It is typically used when accountants need to justify the purchase price of one company by another when the price cannot be justified by the monetary value of the purchased company's assets minus liabilities.Intangible assets are beyond the scope of this chapter as they apply more to larger corporations than to a start-up business.
    • Liability accounts: represent the different types of economic obligations by a business, such as accounts payable, bank loan, bonds payable, accrued interest.Current liabilities are liabilities which are scheduled to be paid within a short period of time, usually less than a year.Examples of current liabilities include accounts payable to creditors, like suppliers, current amounts payable to employees (payroll) and interest due on short term loans.Long-term liabilities (sometimes called fixed liabilities) are liabilities of a more permanent nature like loans that are not due in the current year (long-term debt), and the like.
    • Setting up an appropriate chart of accounts will take some careful thought on your part because you want to be sure that accounts are set up in each category (i.e. assets liabilities, etc. ) that will enable you to accumulate accounting transactions in a meaningful way.
    • For example, starting with the asset account category, you may decide that you need to begin your business with at least the following accounts:

  • Activity Ratios

    • Activity ratios provide useful insights regarding an organization's ability to leverage existing assets efficiently.
    • Activity ratios are essentially indicators of how a given organization leverages their existing assets to generate value.
    • Through identifying the profit compared to the investment in these core assets, the overall efficiency of the organization's utilization can be derived.
    • By tracking these metrics over time, and comparing them to the competition, organizations and stakeholders can gauge their competitiveness and overall capacity to leverage assets in the current industry.
    • For other businesses, asset turnover is a central activity metric.

  • Factoring Accounts Receivable

    • Companies factor accounts when the available cash balance held by the firm is insufficient to meet current obligations and accommodate its other cash needs, such as new orders or contracts.
    • Debt factoring is also used as a financial instrument to provide better cash flow control, especially if a company currently has a lot of accounts receivables with different credit terms to manage.
    • There are two principal methods of factoring: recourse and non-recourse.
    • The receivable is essentially an asset associated with the debtor's liability to pay money owed to the seller (usually for work performed or goods sold).
    • Trade receivables are a fairly low risk asset due to their short duration.

  • Inventory Management

    • In the context of accounting, inventory or stock is considered an asset.
    • Inventory management addresses a number of concerns, including: replenishment lead time; carrying costs of inventory; asset management; inventory forecasting; inventory valuation; inventory visibility; future inventory price forecasting; physical inventory; available physical space for inventory; quality management; replenishment; returns and defective goods; and demand forecasting.
    • Operational: Sourcing planning, including current inventory and forecast demand, done in collaboration with all suppliers; inbound operations, including transportation from suppliers and receiving inventory; outbound operations, including all fulfillment activities, warehousing, and transportation to customers; management of non-moving, short-dated inventory and avoidance of short-dated products.