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Current Assets - Meaning, Types, List of Current Assets with Examples - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the channel
of WallStreetmojo
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friends today we are going to learn or
to toll on current assets now whenever
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your current assets it's it's quite to
visible that assets over here will be
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reflected in the balance sheet so as you
can see assets over here the things have
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been mentioned the total current assets
which which includes all those assets
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which will which will turn out or which
will materialize or which has two
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materials within the one-year of time
spent so cash and cash equivalents
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marketable security or you can say any
asset which can be converted into cash
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and in the liquid form within a 1 year
of time spent all of the details have
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been mentioned which which gives us
total current assets so what exactly are
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the current assets current assets are
basically expected to be consumed or
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sold or converted you can see into cash
either in one year of timespan in the
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operating cycle whether whichever is
longer an operating cycle is basically
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is an average that is average time it
takes to convert an investment into
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inventory back into the cash so current
assets they are presented in order of
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the liquidity this should be really
taken into consideration know which are
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the list of the current assets and let's
understand the Foresters the cash and
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the cash equivalent now companies needs
to needs cash to run their day-to-day
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operations cash usually includes like
checking accounts coins and paper money
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undeposited seats and money orders so
the excess cash is normally invested in
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the low-risk and highly liquid
instrument so that it can generate
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additional income this is called as cash
in cash occurrence cash equivalents may
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include commercial papers CP money
market mutual fund
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Bank certificates you have certificate
CD which is known as certificate of
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deposits and Treasury securities no will
I'll show you the Microsoft 2007's
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balance sheet and what is the person is
with the cash and short-term investment
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as the percentage of the total assets
let's see that as you can see the cash
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and cash equivalents of Microsoft of
2002 total cash and short-term
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investments as you can see 23,411 in 2007 and 34161
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so what is the person is with the cash
and the short-term investments to the
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total assets which is actually really
high right so as we note from the above
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you know you can see the macdonald's
percentage of the cash in cash
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investments short-term investments to
the total assets was close enough to
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52.28% in 2007 and 69.7%
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so it was not Microsoft its McDonald's
so this is how the things have been
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calculated the second thing that we need
to understand is the accounts receivable
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or which is known as daters the credit
given to the customer is known as
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accounts receivable this means that the
company has rendered services or
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delivered the product to the customers
however it has not collected the cash
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fully yet if you compare the Colgate's
we will note something like this that
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you know the net receivable was 155 two
million that was in allowance the 54
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million was in terms of allowance this
implies that the gross accounts
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receivable is 155 to plus 54 million
which is 1606 million for
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this was the case of 2014 and in 2013
the net receivables were 1703
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you can see how significant difference
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is there between both the years
let's understand the next portion of the
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current assets which is invent three now
inventory you means the goods and the
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material that is in the stock there are
three types of inventories one is called
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the raw materials work in progress which
is known as WIP and we have the final
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what we get is what we get as finished
goods
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now from this extract we know that coal
gets raw material inventory was 266
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million walk in progress was 42 and the
finished goods was 863 million which
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amounts to one 171
the next that we are going to understand
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is prepaid expenses now when we discuss
about prepaid expenses they are exactly
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what they sound like
like if a company let's discuss if a
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company pays let's say 10 million an
insurance premium on the last day of the
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month that will provide coverage for the
entire month the company will record how
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much 10 million prepaid expense to
account for the insurance expense it
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will show in the month that is already
paid for
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the next that we are going to discuss is
the other current assets other current
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assets basically consists of other
non-cash assets you can see non-cash
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assets companies often combine small
accounts into an other category detailed
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information on other current assets may
be included in the notes to the
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financial statement analysts should
always check the notes in the annual
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statement often are the annual report
when the figures are relatively high and
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they are unclear what an account
represents let's understand now the
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current assets examples see a example
let's take a current asset example of
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Apple Inc we all have heard about Apple
consider apples last quarter of 2017 the
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total current assets are separately
provided and listed for the each of the
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last four years wherein we can see that
you know the short-term investment which
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are quite liquid are the most of the
chunk and the inventory on the other
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hand which is less liquid at the least
so receivables here basically represents
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the cash that the company has already
earned and yet to receive Apple Inc's
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other current assets for the quarter
ended in the March 2018
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March 2018 was $12,043 million Apple Inc's quarterly other current assets
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declined from September 2017 which was $12,864 million to
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December 2017 as $11,337 million but then it increased from
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December 17
which was $11,337 to $12,043
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in March 18 so have to analyze how to
analyze the current assets the first
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working capital the first and the
foremost thing is working capital
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they'll go to the next sheet no working
capital is basically what is your
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current assets less your current
liabilities now this is basically the
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analysis portion of the current assets
and you can do it by current assets
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minus current liability to find the
working capital working capital of if
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you see for you know for the colgate the
working capital requirement for colgate
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wall had increased significantly to $1,033 million in 2016 as compared to $850
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million in 2015 the next is the analysis
portion is the current ratio now the
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current ratio provides a details of how
the current assets are placed as
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compared to the current liability the
current ratio formula is as simple as
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that the current assets divided by the
current liabilities now this is this
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company called ce o--'s holding its
stock fell close enough to 9.8 percent
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due to the a continuous losses and poor
quarterly results and you know the
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current ratio Sears has been dropping
continuously for past 10 years
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it is now below 1x which is not good and
does not actually look really very good
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the next form of analysis that you can
do is the quick ratio if the inventory
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and the other current assets like
prepaid expenses are large then it may
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skew the current ratio since such items
are not liquid it is wise to calculate
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another ratio that is called the quick
ratio that considers only the cash and
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the cash occurrence and the account
receivables considering only these two
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terms it provides a better view of the
coverage of the short term obligation so
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it includes cash and your cash
equivalents and you need to add any
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accounts receivable divided by the
current liability so let's finally make
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a conclusion on all of this
current assets can be defined as the
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forms ability to convert the value you
can say convert the value of all the
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assets into cash within there your so if
a company has cash short-term
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investments - in cash equivalents they
would be able to generate better returns
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just by using the assets current assets
can range from business like retail
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pharmaceuticals or oil depending upon
its nature so even if the value of the
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form the financial health of the form is
determined by the company's current
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asset and that's why using the using
such assets makes it a great way to
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evaluate the firm's ability to provide
funding to its operation
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