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What are current assets?

Current asset / Current accounts

They are business assets that could be turned into cash within 12 months. These would include bank deposits, money-market instruments, investment-grade securities, money owed by customers and stock in trade. The level of current assets is important as an indicator of the firm's ability to meet its bills.

Key takeaways:

  • What are current assets? A current asset is an asset that is expected to be converted to cash within a year or a business cycle, whichever is longer.

  • The current account is a financial account that tracks a country's international transactions in goods, services, and investment income.

  • The current account balance is an important indicator of a country's economic health.

  • Both current assets and current accounts are crucial for assessing a company's ability to meet its short-term obligations, such as paying off debts, paying suppliers, and covering operating expenses.

Where have you heard about current assets?

Investors will read about current assets in the balance sheets of the companies in which they are interested. If they use the services of a financial adviser, they may be given the adviser's view of the health of a company's current asset position.

What you need to know about current assets

Current assets represent a company's liquidity position, the sum total of what it would be able to raise in the next year should that be necessary in order to meet its bills.

Assets such as plant, machinery, real-estate, licences and copyrights are not current but long-term assets, because they cannot readily be turned into cash. Not all current assets are of equal value. Cash in the bank is obviously the most liquid, money due from customers is less so while stock in trade, also known as inventory, can prove difficult to sell, depending on market circumstances.

Find out more about current assets

To find out more about current assets and what they can tell you about a company's financial health, see our definition of current liabilities.

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