Current Asset

Examples of Current Asset in the following topics:

• Calculating Working Capital

  • Current assets (CA) is an accounting term that refers to assets that can easily be turned into cash.
  • For example, cash is a current asset, but so are most accounts receivable.
  • Suppose that a company has current assets of $100: $20 of cash and $80 of accounts receivable.
  • They also have $50 of current liabilities.
  • Not all current assets can be used to pay off expenses of debts.

• Calculating Expected Value

  • Net working capital is calculated as current assets minus current liabilities.
  • Current assets and current liabilities include three accounts which are of special importance.
  • The current portion of debt (payable within 12 months) is critical, because it represents a short-term claim to current assets and is often secured by long-term assets.
  • An increase in working capital indicates that the business has either increased current assets (that it has increased its receivables, or other current assets) or has decreased current liabilities, for example, has paid off some short-term creditors.
  • Current Assets - Current liabilities (excluding deferred tax assets/liabilities, excess cash, surplus assets, and/or deposit balances).

• Assets

  • Assets on a balance sheet are classified into current assets and non-current assets.
  • On the left side of a balance sheet, assets will typically be classified into current assets and non-current (long-term) assets.
  • A current asset on the balance sheet is an asset which can either be converted to cash or used to pay current liabilities within 12 months.
  • A non-current asset is a term used in accounting for assets and property which cannot easily be converted into cash.
  • This can be compared with current assets such as cash or bank accounts, which are described as liquid assets.

• Current Ratio

  • It compares a firm's current assets to its current liabilities.
  • Current asset is an asset on the balance sheet that can either be converted to cash or used to pay current liabilities within 12 months.
  • Typical current assets include cash, cash equivalents, short-term investments, accounts receivable, inventory, and the portion of prepaid liabilities that will be paid within a year.
  • If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations.
  • If the current ratio is too high, then the company may not be efficiently using its current assets or its short-term financing facilities.

• Fixed Assets Turnover Ratio

  • Fixed assets, also known as a non-current asset or as property, plant, and equipment (PP&E), is a term used in accounting for assets and property that cannot easily be converted into cash.
  • This can be compared with current assets, such as cash or bank accounts, which are described as liquid assets.
  • Moreover, a fixed/non-current asset also can be defined as an asset not directly sold to a firm's consumers/end-users.
  • Its non-current assets would be the oven used to bake bread, motor vehicles used to transport deliveries, cash registers used to handle cash payments, etc.
  • Each aforementioned non-current asset is not sold directly to consumers.

• Liquidity

  • For assets themselves, liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value.
  • The current ratio, which is the simplest measure and is calculated by dividing the total current assets by the total current liabilities.
  • However, some current assets are more difficult to sell at full value in a hurry.
  • The quick ratio, which is calculated by deducting inventories and prepayments from current assets and then dividing by current liabilities--this gives a measure of the ability to meet current liabilities from assets that can be readily sold.
  • This indicates the ability to service current debt from current income, rather than through asset sales.

• 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.

• Total Assets Turnover Ratio

  • Total asset turnover is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue.
  • Companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.
  • Total assets turnover = Net sales revenue / Average total assets
  • Tangible assets contain various subclasses, including current assets and fixed assets.
  • Current assets include inventory, while fixed assets include such items as buildings and equipment.

• Defining Long-Lived Assets

  • Long-lived assets are those that provide a company with a future economic benefit beyond the current year or operating period.
  • Assets are economic resources.
  • Long-lived assets provide a company with a future economic benefit beyond the current year or operating period.
  • Since non-current, or long-lived, assets are expected to last for longer than one year, accounting treats long-lived assets differently according to their useful life.
  • When assets are expected to contribute to earnings for multiple years, such assets are referred to as long-lived, non-current or long-term assets.

• Return on Assets

  • The Return on Total Assets ratio measures how effectively a company uses its assets to generate its net income.
  • The Return on Total Assets ratio is similar to the Asset Turnover Ratio in that both measure how effective a business's assets are in generating returns for the business.
  • But while the asset turnover ratio is focused on the business's sales, return on assets is focused on net income.
  • You calculate the average value of the total assets by adding the value of the business's total assets at the beginning of the period and the value of the business's total assets at the end of the period.
  • This is generally done by comparing the current return on assets ratio to the company's past performance or to a competitor's ratio.