Current assets are also known as current assets.
Current assets or current assets are assets that are liquid at the end of a fiscal year or that are convertible into money within 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 given as payment in any normal operation.
Cash on hand and in banks, marketable securities, accounts receivable, raw materials, and items in process of manufacture are some of the components of current assets. The concept, therefore, covers the treasury (cash and current accounts), convertible or consumable goods in the short term and quasi-liquid assets .
Assets and rights characterized by liquidity
Current assets are assets and rights of a company that are characterized by their liquidity. This means that companies have these assets liquid at the time or that they can do so within the normal production cycle. The greater the amount of liquid assets, the greater liquidity.
Non-current assets , on the other hand, are those that correspond to goods and rights that cannot be converted into cash within a year and that remain in the company for more than one year.
Fixed assets , finally, do not vary during the fiscal year or the 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.
Current assets are characterized by liquidity.
Invest in current assets
In order to know how much money it is necessary to invest in current assets, first of all, all the needs of a company in its fixed assets must be evaluated, that is, in the total of tangible or intangible assets that are recorded in the balance sheets and that have been created or acquired for long-term use. Once this point is reached, it is possible to face the expenses to use these resources.
The objective is to recover said investment, and for this it is necessary to sell 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, the amount of current assets necessary to make the continuity of the cycle just described must be determined.
Parameter evaluation
The easiest and most direct procedure to perform this calculation consists of determining the following parameters:
* average maturity period of the company : this is the time necessary for a given unit of money (which can be a dollar, a euro, a peso, etc.) that has been used for the initial investment to return to the treasury. of a company through collection of sales;
* average daily expense : it is the annual evaluation of the purchases of supplies necessary for the operation of the company, raw materials, labor and any general expenses , expressed on an average per day.
Once this data is obtained, it is known that by producing its product the minimum amount necessary to finance the 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 pertinent review of their impact is not carried out, the life of a company is put in danger.
The basis of a company's success lies in responsible administration , and this entails perseverance and meticulous attention to movements, since a small oversight can quickly become an avalanche.