What is current assets?

What Does current assets Mean

The current assets or current assets is the liquid asset at the time of closing of an exercise or is convertible to cash 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 delivered as payment in any normal operation.

The cash cash and banks, marketable securities, accounts receivable, raw materials and goods in process are some of the components of the active current . The concept, therefore, covers the treasury (cash and current accounts), convertible or consumable goods in the short term and quasi-liquid assets .

Current assets are assets and rights of a company that are characterized by their liquidity. This means that companies have these assets in liquid form 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 assets , however, are those which correspond to the assets and rights that can not be converted into cash within one year and remain with the company for more than one year.
The fixed assets , finally, do not vary during the year tax or 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.
Invest in working capital
In order to know how much money it is necessary to invest in current assets, in the first place all the needs of a company in its fixed assets must be evaluated , that is, in the total of the tangible or intangible assets that are consigned 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 make use of these resources.
The objective is to recover said investment, and for this it is necessary to carry out the sale of 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, you must determine the amount of current assets necessary for the continuity of the cycle just described to be possible.
The process easier and straightforward to perform this calculation is the determination of the following parameters:

* Average maturation period of the company : it is the time necessary for a specific unit of money (which can be a dollar, a euro, a peso, etc.) that has been used for the initial investment takes to return to the treasury of a company through the collection of sales;
* Average daily expenditure : it is the annual evaluation of 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 have been 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 relevant review of their impact is not carried out, the life of a company is endangered.
Responsible management is the foundation for a company's success , and this requires consistency and careful attention to movements, as a small oversight can quickly turn into an avalanche.

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