Home Investing Dictionary Investment Term Current Assets
Current Assets
Written by Kenny Foo   
Monday, 09 March 2009 16:53

Current assets or sometimes is known as current accounts, is assets on balance sheet that can be converted into cash within one year or one business cycle.

 In balance sheet, assets come from two components -  current assets and fixed assets. Current assets include cash, account receivable or trade receivable, inventories that can be ranged from crude oil, finished goods,raw materials or others, prepaid expenses and other liquid assets that can be easily converted into cash in short periods. The opposite of current assets is current liabilities. For individuals, current assets are all assets that can be converted to cash easily to pay off its debts without selling any fixed assets. For corporations, current assets are the source for day-to-day operation funding and pay ongoing expense. Current assets are useful to compare with companies in the same industry since different industry will have different business nature and business environment. For instance, some industry like consulting firms do not need to have high inventory as they are providing services.Hence, the current assets will be lower than those industries that need to have high inventory such as manufacturing companies.

Trade receivables is one of the components for current assets and it needs to be monitored by investors as increasing trade receivables might not be a good sign. Trade receivables is the money that the customers owe to the companies. If the companies have high trade receivables over a period, the companies might have problem to collect money from its customers. 

Besides, current assets are used to calculate current ratio and working capital

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Last Updated ( Tuesday, 10 March 2009 10:37 )
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