Definition of
current assets
He current assets either current active is he liquid assets at the end of a financial year or what is convertible into money in a period of less than twelve months. This type of asset is in continuous operation and can be sold, transformed, used, converted into cash or given as payment in any normal operation.
He cash on hand and in banks, marketable securities, accounts receivable, raw materials and items in manufacturing process are some of the components of current assets. The concept, therefore, encompasses the treasury (cash and current accounts), the convertible or consumable goods in the short term and the quasi-liquid assets.
- Assets and rights characterized by liquidity
- Invest in current assets
- Parameter evaluation
- Related Topics Tree
Assets and rights characterized by liquidity
current assets are estate and rights of a company that are characterized by their liquidity. This means that the companies have these assets in a liquid way at the moment or that they can do so within the normal production cycle. The greater the amount of liquid assets, the greater the liquidity.
The non-current assetson the other hand, are those that correspond to assets and rights that cannot be converted into cash in the course of a year and that remain in the company for more than one year.
The fixed assetsFinally, they do not vary during the fiscal year or the operating cycle of the company. An example of a fixed asset is a factory building, which is part of the company throughout the production process. Unlike current assets, fixed assets are illiquid.
It can help you: Exploitation
Invest in current assets
In order to know how much money it is necessary to invest in current assets, first of all, all the needs of a company in its fixed assets must be evaluated, that is, in the total of tangible or intangible assets that are entered in the balance sheets and that created or acquired for long-term use. Once this point is reached, it is possible to face the expenses to use these resources.
The objective is to recover said investment, and for this it is necessary to sell the products, in such a way that a continuous flow is generated, which begins with production; on the other hand, the fixed assets necessary for financing deteriorate and must be replaced. In short, the amount of current assets necessary to make it possible to continue the cycle just exposed must be determined.
See also: Foreign investment
Parameter evaluation
The easiest and most direct procedure to carry out this calculation consists in the determination of the following parameters:
* average period of maturity of the company: it is the time necessary for a certain unit of money (which can be a dollar, a euro, a peso, etc.) that has been used for the initial investment, it takes to return to the treasury of a company through the collection of sales;
* average daily expense: it is the annual evaluation of the purchases of supplies necessary for the operation of the company, raw materials, labor and any general expense, expressed as an average per day.
Once these data are obtained, it is known that by making your product the minimum amount necessary to finance current assets is obtained. It is a value that must be invested permanently, either with your own money or through third-party financing. It should be noted that if any of these parameters are modified, and the pertinent review of its impact is not carried out, the life of a company is endangered.
The basis of a company’s success lies in responsible management, and this entails perseverance and careful attention to movements, since a small oversight can quickly turn into an avalanche.
Follow on: Carelessness