What is Current Assets Formula?
The formula for current assets is calculated by adding all the assets from the balance sheet that can be transformed into cash within a period of one year or less. Current assets primarily include cash, cash, and equivalents Cash, And EquivalentsCash and Cash Equivalents are assets that are short-term and highly liquid investments that can be readily converted into cash and have a low risk of price fluctuation. Cash and paper money, US Treasury bills, undeposited receipts, and Money Market funds are its examples. They are normally found as a line item on the top of the balance sheet asset. read more, account receivablesAccount ReceivablesAccounts receivables refer to the amount due on the customers for the credit sales of the products or services made by the company to them. It appears as a current asset in the corporate balance sheet.read more, inventory, marketable securities, prepaid expenses, etc. Adding all these together, along with other such liquid assetsLiquid AssetsLiquid Assets are the business assets that can be converted into cash within a short period, such as cash, marketable securities, and money market instruments. They are recorded on the asset side of the company's balance sheet.read more, can help an analyst to understand the short term liquidity of a business.
It is noteworthy that usually, current assets are listed on the company’s balance sheet in the descending order of liquidityOrder Of LiquidityThe presentation of various assets in the balance sheet with the time it takes for each to be converted into cash is known as the order of liquidity. Cash is considered a most liquid asset, followed by cash equivalents, marketable securities, account receivables, inventories, non-current investments, loans and advances, fixed assets.read more and cash being the most liquid form of the current assetCurrent AssetCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more i.e., easily convertible to cash. It is listed first. These short term assetsShort Term AssetsShort term assets (also known as current assets) are the assets that are highly liquid in nature and can be easily sold to realize money from the market. They have a maturity of fewer than 12 months and are highly tradable and marketable in nature.read more are the vital components of a company’s short term liquidity and net working capitalNet Working CapitalThe Net Working Capital (NWC) is the difference between the total current assets and total current liabilities. A positive net working capital indicates that a company has a large number of assets, while a negative one indicates that the company has a large number of liabilities.read more requirement.
Current Asset Formula is represented as,
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For eg:
Source: Current Assets Formula (wallstreetmojo.com)
Explanation of the Current Assets Formula
The formula for calculation of current assets can be derived by using the following two simple steps:
- Firstly, gather all the assets, which can be liquidated within a period of one year or less, from the balance sheet of the company. Such assets include cash, cash equivalents, inventory, marketable securitiesMarketable SecuritiesMarketable Securities is an investment option for the organization to earn returns on existing cash while maintaining cash flow due to high liquidity. The following examples outline the most common marketable securities: common stocks, commercial papers, banker’s acceptance, treasury bills, and certificate of deposit.read more, accounts receivables, and prepaid expenses, other liquid assets, etc.
- Finally, the total current assets formula is calculated by adding up all the short term assets mentioned in the previous step.
Current Assets = Cash and Cash Equivalents + Accounts Receivables + Inventory + Marketable Securities + Prepaid Expenses + Other Liquid Assets
Examples of Current Assets Formula
Let’s see some simple to advanced examples to understand the calculation of Current Assets Formula better.
Current Assets Formula – Example #1
Let us consider an example to calculate the current assets of a company called XYZ Limited. As per the annual report of XYZ Limited for the financial year ended on March 31, 20XX.
The below template shows the data of XYZ Limited for calculation of Current Assets for the financial year ended on March 31, 20XX.
Current assets = Cash and Cash Equivalents + Accounts Receivable + Inventory + Marketable SecuritiesMarketable SecuritiesMarketable securities are liquid assets that can be converted into cash quickly and are classified as current assets on a company's balance sheet. Commercial Paper, Treasury notes, and other money market instruments are included in it.read more + Prepaid Expenses.
So, the calculation of Current Assets of XYZ Ltd., by using the above formula can be as:
Therefore, Current Assets of XYZ Limited for the financial year ended on March 31, 20XXwill be :
=$100,000 + $40,000 + $12,000 + $33,000 + $6,000
The current assets of XYZ Limited for the year ended on March 31, 20XX is $191,000.
Current Assets Formula – Example #2
Let us take the example of Walmart Inc.’s annual report for the fiscal year in January 2018.
The below template shows the data of Walmart Inc.’s for the fiscal year ending in January 2018.
Current assets (in USD Billions)=Cash and Cash Equivalents + Accounts Receivable + Inventory + Other current assets.
Therefore, the calculation for Current Assets of Walmart Inc.’s for the fiscal year ending in January 2018 can be:
Therefore, Current Assets of Walmart Inc.’s for the fiscal year ending in January 2018 will be,
=6.76 + 5.61 + 43.78 + 3.51
Current Asset of Walmart Inc.’s for the fiscal year ending in January 2018= $59.66
This means that Walmart Inc.’s current assets for the fiscal year ended in January 2018 stood at $59.66 Bn.
Current Assets Formula – Example #3
Let us take the example of Microsoft Corp.’s annual report for the fiscal year in June 2018.
The below table shows the data and calculation of Microsoft Corp.’s annual reportAnnual ReportAn annual report is a document that a corporation publishes for its internal and external stakeholders to describe the company's performance, financial information, and disclosures related to its operations. Over time, these reports have become legal and regulatory requirements.read more for the fiscal year in June 2018.
Current assets (in USD Billions)=Cash and Cash Equivalents + Accounts Receivable + Inventory + Other current assets.
Therefore, current assets of Microsoft Corp.’s for the fiscal year ending in June 2018 will be:
=133.77 + 26.48 + 2.66 + 6.75
Current Assets of Microsoft Corp.’s for the fiscal year ending in June 2018 = $169.66
This means that Microsoft Corp.’s current assets for the fiscal year ended in June 2018 stood at $169.66 Bn.
Current Assets Formula Calculator
| Cash & Cash Equivalents | |
| Accounts Receivables | |
| Inventory | |
| Marketable Securities | |
| Prepaid Expenses | |
| Other Liquid Assets | |
| Current Assets Formula = | |
| Current Assets Formula = | Cash & Cash Equivalents + Accounts Receivables + Inventory + Marketable Securities + Prepaid Expenses + Other Liquid Assets | |
| 0 + 0 + 0 + 0 + 0 + 0 = | 0 |
Example of Current Assets Formula (with Excel Template)
Now let us take the case of Apple Inc. to illustrate the calculation of current assets in the excel template below. The table provides the detailed calculation of the current assets for the financial year ending on September 29, 2018, and September 30, 2017.
The below template shows the data and calculation of Apple Inc for the financial year ending on September 29, 2018, and September 30, 2017.
Therefore, calculation of current assets of Apple Inc for the financial year ending on and September 30, 2017, is,
=20,289 + 53,892 + 17,874 + 4,855 + 17,799 + 13,936 + 128,645
Current Assets of Apple Inc for the financial year ending on and September 30, 2017, will be:
Current Assets of Apple Inc for the financial year ending on September 30, 2017=128,645
Similarly, we can calculate the Current Assets of Apple Inc for the financial year ending on September 29, 2018, by using the above formula,
Current Assets of Apple Inc for the financial year ending on September 29, 2018=119,252
Relevance and Use of Current Assets Formula
It is vital to understand the concept of current asset formula as it is a key indicator of a company’s short term financial health. The ideal ratio of the current assets to the current liabilities of the companyCurrent Liabilities Of The CompanyCurrent Liabilities are the payables which are likely to settled within twelve months of reporting. They're usually salaries payable, expense payable, short term loans etc.read more should be between 1.25 to 2.00. If in case the current liabilities exceed the current assets, i.e., the ratio is less than 1. It means that the company’s current assets are not enough to cover the current financial obligations adequately. Again in case, the current assets exceed the current liabilities, i.e., the ratio is around 1.5, then the company has enough assets to pay off the short term debts.
On the other hand, having too much of current assets can be seen as a bad thing as this indicates that the company is either not willing to or is unable to invest the profits into upcoming growth projects. Achievement of the correct balance of current assets and current liabilities can be a positive indicator to lenders and investors that the company has enough cash in hand for financial emergencies and that the company is investing the profits in the right kind of opportunities.
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