1.2.1.1. Assets
An asset of a company is anything the company owns that has economic value. Assets range from cash to tangible items, like equipment and real estate, to intangibles, such as intellectual property and goodwill. Assets are generally presented on a balance sheet in descending order of liquidity, with more liquid assets presented first and less liquid assets listed later.
Current assets are assets that are likely to be converted into or exchanged for cash within 12 months. The most obvious type of current asset is cash, the most liquid asset of them all. Other current assets include:
• Cash equivalents. Cash equivalents can be easily converted into cash and are nearly as liquid. Any highly liquid security that has a predictable market value and matures within three months of being acquired is considered a cash equivalent. Examples of cash equivalents include money market funds, short-term Treasury bills, and commercial paper.
• Marketable securities. Marketable securities are exactly what they sound like: securities that can be readily sold. A security that has a predictable market value may qualify as a cash equivalent, but securities that are subject to fluctuations in value—shares of common stock, for example—are not considered cash equivalents. Marketable securities are valued at the lower of their cost or their market value.
• Inventory. Inventory—the value of a company’s raw materials, work in progress, and finished goods held for sale—is a current asset because companies generally expect (or at least hope) to sell inventory for cash within 12 months. There are different ways to calculate the value of inventory, and the notes to the balance sheet should explain which method was used.
• Accounts receivable. Accounts receivable, or receivables for short, is money owed to the business by customers or oth