Are Investments Current Assets?
Investments may or may not be current assets depending on how long they are held for.
A current asset is any asset that will provide an economic benefit for or within one year.
If an investment has a maturity of a year or less, such as a US Treasury Bill, or is purchased with the intent to resell quickly, such as with trading securities, then it is a current asset.
If the investment will be held for longer than a year, such as with equity shares, then it is a non-current asset.
Current Asset Definition and Examples
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As mentioned above, current assets are assets expected to be converted into cash within a period of one year.
This includes products sold for cash as well as resources consumed through regular business operations that are expected to provide a cash return within a year.
Assets which fall under current assets on a balance sheet are:
- Cash, such as money in a bank account
- Cash Equivalents, such as certificates of deposit
- Inventory to be sold within 1 year known as “fast moving consumer goods” (or FMCG), such as raw materials
- Accounts Receivable, such as an invoice sent to a client
- Marketable Securities, expected to become cash within 1 year, such as T Bills
- Prepaid Expenses, such as prepaid insurance
- Other Liquid Assets not intended for sale, such as office supplies
With these asset categories falling under current assets, the equation for is the following:
Current Assets = C + CE + I + AR + MS + PE + OLA
- C = Cash
- CE = Cash Equivalents
- I = Inventory
- AR = Accounts Receivable
- MS = Marketable Securities
- PE = Prepaid Expenses
- OLA = Other Liquid Assets
Examples of noncurrent, or fixed assets include property, plant, and equipment (PP&E), long-term investments, and trademarks as each of these will provide economic benefit beyond 1 year.
Current assets reflect the ability of a company to pay its short term outstanding liabilities and fund day-to-day operations.
For this reason, a company’s “working capital” is known as the “current ratio” which divides current assets by current liabilities.