Level of investment in current assets

Current assets include cash, cash equivalents, accounts receivable, stock inventory, marketable securities, pre-paid liabilities, and other liquid assets. Downes, J. Depending on the nature of the business and the products it markets, current assets can range from barrels of crude oil, fabricated goods, work in progress inventory, raw material, or foreign currency. Different accounting methods can be used to inflate inventory, and, at times, it may not be as liquid as other current assets depending on the product and the industry sector.

Glossary of Business Terms The creation of more money through the use of capital. Current asset — In accounting, a current asset is an asset on the balance sheet which can either be converted to cash or used to pay current liabilities within 12 months. Investment club — An investment club is a group of individuals who meet on a regular basis for the purpose of pooling money and retail investing. For certain type of club pooling money is not mandatory. Current account — This article is about the macroeconomic current account.

The working capital cycle or operating cycle is the period of time between when a company settles its accounts payable and when it receives cash from its accounts receivable. Companies with comparatively longer operating cycles than others in the same industry sector, will therefore require comparatively higher levels of investment in current assets. These determine the period of credit extended to customers, any discounts offered for early settlement or bulk purchases, and any penalties for late payment. A company whose terms of trade are more generous than another company in the same industry sector will therefore need a comparatively higher investment in current assets. Even within the same industry sector, companies will have different policies regarding the level of investment in current assets, depending on their attitude to risk.

Current ratio explained

Related Articles. Please help improve this article by adding citations to reliable sources. Such commonly used ratios include inbestment assets, or its components, as a key ingredient in their calculations. Personal Finance. Inventory —which represents raw materials, components, and finished products—is included as current assets, but the consideration for this item may need some careful thought. Inventory may not be as liquid as accounts receivable, and it blocks the working capital. Current assets contrast with long-term assets, which represent lebel assets that cannot asseys feasibly turned into cash in the space of a year. Many use a variety of liquidity ratioswhich represent a class of financial metrics used to determine a debtor’s ability to pay off current debt obligations without raising external capital. Corporate Finance Institute.