Glossary
Current Assets
Assets expected to be turned into cash or used up within one year, such as cash, receivables and inventory.
Current assets are the resources on a company's Balance sheet that it expects to convert to cash, sell or consume within one year or one operating cycle, whichever is longer. They are the pool a business draws on to pay suppliers, staff and short-term lenders, so they sit at the center of any test of near-term financial health.
What is included
Balance sheets usually list current assets in order of how quickly they turn into cash:
- Cash and cash equivalents, including money-market holdings and very short-term Treasury bills.
- Short-term investments, such as marketable securities the company plans to sell within a year.
- Accounts receivable, money customers owe for goods already delivered.
- Inventory: raw materials, work in progress and finished goods.
- Prepaid expenses, such as insurance paid in advance.
Long-lived items like factories, equipment and patents are non-current assets.
How analysts use them
Current assets are compared with Current Liabilities to judge liquidity. The difference is Working capital, the ratio is the Current Ratio, and the stricter Quick ratio leaves out inventory because it may not sell quickly or at full value.
What to watch for
Quality matters as much as size. Receivables that grow much faster than sales can mean customers are paying late, and swelling inventory can signal weak demand or obsolete stock that may later be written down. A large cash pile held abroad or pledged as collateral may not be as available as it looks.