What are Current Assets

Current assets are the lifeblood of any business as net current assets represent the liquidity of a business and its ability to finance its trading.

Definition of Current Assets

Cash, accounts receivable and stock / inventory in that order of importance are the three most common current assets held by any business. “Current” is defined as being cash convertible within twelve months.

Current Assets and Liquidity

Current assets less liabilities payable within one year broadly described the liquidity of a business. In Figurewizard  balance sheet forecasts it is shown both as net current assets and its more common definition - working capital.

The perceived quality of working capital is very important. For example accounts receivable thought to be at risk or stock / inventory items seen as slow sellers are likely to call their “current” status into question, in which case auditors are going to insist on writing down their value.

Other Current Assets

Prepayments and insurance premiums whereby the expiry of the cover is beyond the end of the financial year will also count as current assets.

For example if a trade protection policy with an annual premium of £2000 still has three months to go at the end of the financial before renewal, £500 (i.e. 25%) will be treated as a current asset.

Forecasting Current Assets

Banks, creditors and potential investors will aways attach the greatest importance to a balance sheet forecast and the most important component of that will be the relationship between current assets and current liabilities.

To view how Figurewizard can quickly and easily produce such forecasts for you simply from your raw forecast figures, follow the links below or select one of the sample forecasts from the menu on the left.

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