Current Asset

Indicator Description

Current Asset is important to company's creditors and private equity firms as they will often be interested in how much that company has in current assets since these assets can be easily liquidated in case the company goes bankrupt. However, it is usually not enough to know if a company is in good shape just based on current asset alone; the amount of current liabilities should always be considered.

Current Asset 
 = 
Cash 
Deposits 
Liquid Assets 

Current Asset is all of the company's assets that can be used to pay off current liabilities within the current fiscal period or over the next 12 months. Current Asset includes cash or cash equivalents, accounts receivable, short-term investments, and the portion of prepaid liabilities which will be paid within the next 12 months. Because these assets are easily turned into cash, they are sometimes referred to as liquid assets.

Current Asset In A Nutshell

But first, current assets can be many different things across many industries, particularly regarding liquid assets, which are anything that can be sold quickly and turned into cash. Cash is cash, and deposits is money that is coming in from the different outlets of the company.

Current Assets is cash, plus deposits, plus liquid assets. Current assets are important because you want those to be in healthy proportion to the debt that the company may have. Let us break out each part of the equations to give you a little detail.

Closer Look at Current Asset

Taking a look at cash specifically, this is the most basic because it is what it is, cash. However, you want to know how much cash the company has and if it can live off of that cash if revenue began to slow. Cash is what makes a buinsess tick and should be regarded as one of the most important aspect in the current assets.

Switching over to deposits, think of it like a bank and people depositing money. A business may have money coming in as deposits, but it may not be on the books right now, but with certainty will come. If you want to take that a step further, you can look into the creditworthiness of the business that are depositing money and if they will continue to pay. Deposits could also represent money the company already has as the deposit.

Lastly are liquid assets, and these are assets that can be sold quickly and turned into cash. For some companies, this could be a vehicle or a piece of machinery that is in high demand. You will not take inventory into account because that may not be able to be liquidated quickly. Obviously if items needed to be liquidated, the company could discount the price enough to where they would fly off the shelf, but in your equation that typically is not included.

Current assets should be an important part of your fundamental research as this can give you an idea of how the company is in terms of debt and other relatable factors. You can compare this numbers across others in the industry, giving you an idea of where the company stands in relation to the others. If you still need help, there are many tools and groups out on the internet that can help guide you in the right direction.

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