Current assets: A short-term financial health indicator of the company

Why Investors Should Look at Current Assets Before Deciding to Invest

Balance Sheet (Balance Sheet) provides a comprehensive view of a company’s financial position. However, what many investors overlook is current assets — the figures that indicate the company’s ability to withstand a financial crisis. If the company faces an emergency, such as unsold inventory or decreased customer demand, current assets serve as the last resort to cover expenses like employee salaries, rent, or equipment repairs.

What Are Current Assets?

Current Assets or (Current Asset) are goods and resources that a company can convert into cash within 1 year. Deciding on this is crucial to assess how long the company can survive when income stops flowing.

The difference from non-current assets ###Noncurrent Asset( lies in how easily they can be converted into cash:

• Current assets are liquid within 1 year, such as cash, stocks, bonds, short-term loans.
• Non-current assets are held for more than 1 year and are harder to sell, such as land, buildings, machinery, long-term investments.

Main Components of Current Assets

) 1. Cash and Cash Equivalents (Cash & Cash Equivalents) Cash is the most liquid asset, while bank deposits or short-term bonds are the least risky investments. Although they earn ###interest(, they come with slight bank stability risks.

) 2. Short-term Investments ###Short-term Investments( Companies buy stocks, gold, or bonds intended to hold less than 1 year. These carry higher risk but can generate profits as prices of goods or stocks fluctuate.

) 3. Notes Receivable ###Notes Receivable( Contracts stating that partners will pay back within 1 year. These generate interest income but carry the risk of default.

) 4. Accounts Receivable ###Accounts Receivable( Amounts owed by customers that are still unpaid. Companies allow customers to pay late for convenience, but during a crisis, customers may lack funds, making this figure potentially overstated.

) 5. Inventory ###Inventory( Raw materials, work-in-progress, and finished goods awaiting sale. Monitoring this is important; if goods do not sell, their value decreases.

) 6. Prepaid Expenses (Prepaid Expenses) Payments made in advance for future services, such as insurance or rent.

Real Example: Apple Analyzes Its Current Assets

Apple $59 AAPL$135 is a company where CEO Tim Cook confirms that “liquidity is not an issue.” Let’s look at the figures in Thai numerals:

End of 2019: Current assets $162,819 million, cash (million dollars)

End of 2020: Current assets decreased to $90 million dollars$48

Notable observations:

• Cash and cash equivalents (million dollars) decreased from (million to )million, a drop of 46% $37 .
• Trade receivables $60 Receivables( increased from )million to (million, a 62.7% increase ).

This may indicate that Apple changed its collection approach or that its collection ability has declined, which warrants close monitoring.

How to Read Current Assets to See the Truth

When reviewing the balance sheet, don’t just count the total. Pay attention to the breakdown:

The quality of current assets depends on which parts are at the top:

• Cash and cash equivalents = highest (certainly convertible to cash)
• Trade receivables = moderate (depends on customer credit)
• Inventory = lowest may not sell, potentially obsolete

Track changes year over year. If cash decreases but receivables increase, it could signal collection problems.

Summary

Current assets tell many stories about a company — how liquid it is, whether customers pay well, whether goods sell well. A single number isn’t enough; investors need to dig deeper into which parts of current assets are strong and which might be muddy waters. Then, they can make informed investment decisions about that company.