Current Assets: What It Means and How to Calculate It, With Examples

It provides an overview of the company’s assets, liabilities, and equity. The balance sheet can assess a company’s financial health and calculate important ratios such as the current ratio. These resources are often referred to as liquid assets because they are so easily converted into cash in a short period of time.

One needs to judge if the company expects to realize value from the current assets within the year, then, it should be grouped under current assets. Assets that can be quickly converted to cash are known as current assets. They are important because they indicate a company’s ability to meet short-term financial obligations. These obligations include paying off short-term debts, accounts payables, payment against credit notes, and covering everyday expenses. The cash ratio is the most conservative as it considers only cash and cash equivalents. The current ratio is the most accommodating and includes various assets from the Current Assets account.

What is the Difference Between Current Assets vs. Non-Current Assets?

Current assets are important components of a company’s balance sheet and financial statements. Current assets are items that a company expects to convert to cash in one year. Examples of current assets include cash, accounts receivable, inventory, and short-term investments. Current assets shall include stock inventory, accounts receivable, cash, cash equivalents, pre-paid liabilities, marketable securities, and other liquid assets. These are the key assets that form the base of the current assets. There is no exhaustive list of current assets which can give, but 80% of the company’s current assets will compromise the above-mentioned things.

The dollar value represented by the total current assets figure reflects the company’s cash and liquidity position. It allows management to reallocate and liquidate assets—if necessary—to continue business operations. A company’s current liabilities are obligations that are due within one year.

How Do Investors Use Current Assets?

Return on invested capital (ROIC) is a calculation used to assess a company’s efficiency at allocating the capital under its control to profitable investments. Return on invested are any assets easily converted into cash within one calendar year capital gives a sense of how well a company is using its money to generate returns. Generally speaking, most companies have an operating cycle shorter than a year.