What are current assets?
Current assets are balance sheet assets a business expects to convert to cash, sell or consume within 12 months of the reporting date. Under IFRS (IAS 1) and US GAAP (ASC 210), they are listed in order of liquidity at the top of the asset section.
Main components
- Cash and cash equivalents: bank balances, money-market funds and short-term investments with original maturities of three months or less.
- Trade receivables (accounts receivable): amounts owed by customers, net of expected credit losses (IFRS 9 / ASC 326).
- Inventory: raw materials, work-in-progress and finished goods, measured at the lower of cost or net realisable value.
- Prepaid expenses: rent, insurance and software fees paid in advance and consumed over time.
- Short-term investments: marketable securities held for less than 12 months.
Current assets vs. related categories
- Current assets vs. fixed assets: fixed assets are held for long-term use; current assets are held for near-term conversion.
- Current assets vs. quick assets: quick assets exclude inventory and prepaids — used in the acid-test ratio.
- Current assets vs. working capital: working capital = current assets − current liabilities (the operating liquidity headroom).
Key ratios investors care about
- Current ratio: Current Assets ÷ Current Liabilities. Above 1.5× is comfortable; below 1× signals stress.
- Quick ratio (acid test): (Current Assets − Inventory) ÷ Current Liabilities. A stricter solvency check.
- Days Sales Outstanding (DSO): Receivables ÷ Daily Revenue × 365. Rising DSO is an early warning of collection problems.
Do: reconcile current asset balances monthly; age your receivables and write down stale balances per IFRS 9 expected-credit-loss methodology.
Don’t: treat all receivables as collectable cash — in stressed customer cycles, 30–60 day balances flip to bad debt fast.