Definition of 'Current Assets'
Cash and cash equivalents are the most liquid assets of a company and include cash on hand, money market funds, and short-term investments. Accounts receivable are amounts due from customers for goods or services sold on credit. Inventory is the value of goods that a company has on hand for sale. Prepaid expenses are amounts paid in advance for goods or services that will be received in the future.
Current assets are important for a company because they provide a source of liquidity to fund day-to-day operations. A company with a high level of current assets is more likely to be able to meet its short-term obligations. However, a company with too many current assets may be inefficiently using its funds. The optimal level of current assets will vary depending on the industry and the company's specific needs.
Current assets are typically reported on a company's balance sheet. The current ratio is a financial ratio that measures a company's ability to meet its short-term obligations. The current ratio is calculated by dividing current assets by current liabilities. A current ratio of 1.0 or greater is considered to be healthy.
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