Current assets include those that are periodically renewed by a certain business entity. They are necessary for the latter for implementation and normal functioning. For a certain period of time, usually one year is taken, they go through one or more cycles. Compared to fixed assets, they are characterized by an increased turnover rate.
Composition of current assets (OA)
They are necessary for the implementation of the economic and management goals of an economic entity. The manager or economist receives the necessary information from the financial statements. The composition of working capital (current assets) includes:
- Money and cash equivalents. The first are the corresponding funds in the cash desk of the economic entity and on demand accounts, and the second are highly liquid financial investments that are easily transferred for the first time.
- Various financial investments. Miscellaneous securitieswith a maturity of up to one year.
- Accounts receivable. Debt of individual counterparties to a legal entity.
- VAT on purchased items. Tax that is accepted for accounting, but which will be deducted when additional conditions occur.
- Raw materials and components for production, goods in stock.
- Other OA. These include damaged or missing material assets that are not written off as production costs or those responsible.
Essence of OA analysis
With their help, the following indicators of the activity of an economic entity are determined:
- liquidity;
- stability;
- profitability.
For the analysis of current assets, dynamic indicators obtained from financial statements are used.
It is most important to consider OA in the following circumstances:
- Implementation of tax audits. They can be used to justify any resulting seasonal losses.
- The need for credit. Before issuing a loan, the bank checks the financial condition of the business entity. In this case, OA can act as collateral for loan obligations.
Current assets ratio
This name is used as an abbreviation. Its full name is the turnover ratio of working capital.
With its help, the number of their transfers to cash and vice versa is determined. It is determined by the ratio of revenue received fora certain period (usually a year) to the average cost of OA for the same period.
The last indicator is calculated as a quarter of the sum of the average quarterly balances for the year.
This formula is for evaluating the effectiveness of the use by an economic entity of the resources at its disposal.
Coefficient values
Different economic entities work in different industries. In this regard, the coefficient considered above will differ for them. The highest indicator is typical for trading organizations, since they receive revenue in a short period of time. The lowest turnover is inherent in enterprises of culture and science.
In this regard, the analysis of this coefficient should be carried out only in the context of one industry.
The factors that influence its value are as follows:
- character of activity of an economic entity;
- qualification of employees;
- type of raw materials used;
- volumes and rates of production, duration of the production cycle.
Analysis of OA turnover ratio values
The activity of an economic entity is recognized as profitable if the value of the coefficient is greater than one. Therefore, the analysis of current assets can be carried out according to this indicator, Changes in the turnover ratio are studied in dynamics.
The growth of this indicator may be due to the following reasons:
- introduction of progressive technologies and innovations;
- decrease in degreecurrent assets;
- increase in the level of work of an economic entity;
- better resource efficiency;
- growing profits and sales.
An increase in this indicator can be achieved if appropriate work is carried out at all stages of the activity of an economic entity.
Coefficient values are compared with last year, determining its growth rate, as well as with industry average values.
Own OA
This indicator is used for financial analysis. Own current assets are called in a different way working capital. It shows the difference between an entity's OA and its current liabilities.
Thus, with the help of this indicator, the ability of an economic entity to pay off the latter is determined if its current assets are realized.
Consequently, a legal entity will be considered the more financially stable, the more it has its own working capital. If this indicator is negative, then this indicates that this business entity is characterized by potential risks.
The concept of financial OA
These include cash and short-term financial investments.
The first ones show the available assets in various currencies, available in the cash desk of an economic entity, on its settlement and current accounts, which are used to carry out the current activities of a legal entity.
Financial current assets in the form of short-term financial investments are those for a period not exceeding one year, which are subject to free sale at any time interval. This includes investments in various securities, bank deposits and other instruments. Highly liquid financial investments are considered cash equivalents. This is due to the fact that they can be quickly transferred to them, which will ensure the fulfillment of the obligations of the economic entity to lenders.
When assessing financial OA, the current liquidity ratio is calculated, showing the percentage of a legal entity's short-term assets to its short-term liabilities. The most acceptable value of this indicator is 200%. This indicates that an entity can fully cover its short-term liabilities and still have liquid funds to continue its economic activity.
The concept of non-current assets
All funds are divided into fixed and current. From the point of view of accounting, this classification is broader: current and non-current assets. The latter have a useful life of more than one year. Working capital can be easily converted into cash. Thus, the liquidity of an economic entity will be the higher, the more OA it has.
In the organization's balance sheet, all assets are divided into current and non-current. Tothe latest include the following:
- deferred tax assets - part of corporate income tax that has been deferred and should lead to its reduction in the future, payable in subsequent tax periods;
- financial investments - various securities with a maturity exceeding one year;
- fixed assets - means of labor with a period of use of more than 12 months; these include transport, transmission devices and facilities, machinery and equipment, buildings;
- profitable investments in material assets - those of the main assets of an economic entity that are intended to be provided by the owner for temporary use (rent) to generate income;
- search tangible assets - these include those used in the search for minerals, exploration of their deposits, their evaluation, as well as the costs of facilities, equipment and transport;
- search intangible assets - all those that do not belong to the tangible form from the last paragraph;
- results of development and research - the costs of an economic entity for R & D, as a result of which positive results were obtained, while they do not belong to the next group under consideration;
- intangible assets - exclusive rights to intellectual property items accounted for in accounting;
- other non-current assets.
Conclusion
All funds and resources available toeconomic entity, are divided into non-current and current assets. The latter include those that must be used within a short period of time, usually one year. This division is important for economists, because the more of these assets a legal entity has, the higher its liquidity.
