Concept and types of current assets
Current assets are those that are used simultaneously when you release them into production. The composition of current assets include, in particular, the reserves, raw materials, semi-finished products, VAT on purchased goods short-term receivables (under one year), financial investments, money, etc.
The presence of a sufficient amount of current assets necessary for the normal financial activity of the enterprise, it and raw materials for production, money for calculations with suppliers.
Concept and types of non-current assets
Non-current assets are those, the usage period is more than 12 months. In non-current assets include intangible assets, R & d, fixed assets (buildings, machines, buildings), investments in tangible assets and financial investments with a long period of return), deferred tax assets and other assets.
Differences from working capital non-current assets
The first difference from the working capital non-current assets is the term of repayment. To the reverse it usually is 12 months (in most enterprises of the year is the operating cycle) non-current more than a year.
However, this division is very conditional. The maturity of the asset is not always used as the basis for the classification of the asset as current. A big role in this case plays the liquidity of the asset. For example, receivables with a maturity of over a year is usually the non-current asset, but if the organization can sell it before that period, it can be regarded as a negotiable asset. Thus, noncurrent assets are less liquid than negotiable. They are more difficult to sell, paying in money, and part of current assets - money has absolute liquidity.
Another hallmark of non-current assets is the fact that this part of the enterprise unchanged for a long time. They convey manufactured products, the cost of parts, while circulating fully.
A high proportion of current assets different resource production and trade, while asset-intensive companies (e.g., telecommunications) - have a low proportion.
Companies with a predominance of circulating assets easier to attract short-term loans. Whereas non-current assets require a long-term investment and source of their purchases usually are your own funds.
Advice 2: What are the differences between the current and absolute liquidity
Liquidity is the ability to easily turn assets into cash. In the broad sense liquidity represents the solvency of the organization, i.e. its ability to timely meet its debts. To assess the viability of the enterprise to calculate the measures of absolute and current liquidity.
In the process of assessing the liquidity and creditworthiness of enterprises consider the current liquidity ratio. This coefficient is calculated according to the balance sheet and reflects the percentage of repayment of short-term liabilities of the company by its current assets. The higher the coverage ratio the debt, the more attractive the enterprise is for potential borrowers.
The current liquidity ratio is calculated by dividing the sum of all current assets by the amount of current liabilities. The value of the current assets determined by the indicators of the second section of the balance sheet "current assets and includes cash, inventory, liabilities receivables, short-term investments. Current liabilities include short-term loans and borrowings, payables and amount of other borrowed funds.
The normative value of the coefficient of debt repayment must be greater than 2. The calculation of this indicator is of particular interest to creditors because it reflects the ability of companies to fully pay off their debts in the event of a decline in the market prices of assets.
Absolute liquidity ratio is calculated as the ratio of highly liquid assets to the value of the most urgent liabilities. As a highly liquid asset is cash and short-term investments. Under understand current liabilities short-term liabilities, net of deferred income and reserves for future expenses.
From the calculation of the absolute liquidity can determine the value of the forward commitment, the organization can repay in the shortest possible time. Optimal is the value of the coefficient greater than 0.2. The value of this index is the most important for future vendors and lenders, providing short-term loans.
The differences between the current and absolute liquidity
The calculation of the coefficients of the current and absolute liquidity, provides an opportunity to assess the solvency of the company in the short term. Unlike the measure of absolute liquidity coverage ratio reflects the ability of the company to meet its debts in the long term.
Absolute liquidity shows the ability of the organization to pay its most immediate liabilities with cash and collected receivables. The indicator of current liquidity to account not only the money received from the sale of finished products and implementation of accounts receivable, and proceeds from the sale of current assets.
For shareholders and potential investors of great importance is the indicator of current liquidity, and to suppliers and creditors for a short time — absolute liquidity.