Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Current Assets

What it is:

A current asset is cash or any asset that can be reasonably converted to cash within one year.

How it works (Example):

Current assets typically include categories such as cash, marketable securities, short-term investments, accounts receivable , prepaid expenses, and inventory.

Restricted cash (that is, cash that cannot be withdrawn or used for current operations), depreciable assets, receivables that are not due in 12 months or less, and land are examples of things that are not current assets.

Why it Matters:

Current assets are important because they indicate how much cash a company essentially has access to within the next 12 months outside of third-party sources. It is indicative of how the company funds its ongoing, day-to-day operations, and how liquid a firm is. The ratio of current assets to current liabilities is particularly important in judging liquidity.

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