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What is Current Assets Formula?
The formula for current assets is calculated by adding all the asset from the balance sheet that can be transformed to cash within a period of one year or less. Current assets primarily include cash, cash and equivalents, account receivables, inventory, marketable securities, prepaid expenses etc. Adding all these together along with other such liquid assets 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 liquidity and cash being the most liquid form of the current asset i.e. easily convertible to cash, it is listed first. These short term assets are the vital components of a company’s short term liquidity and net working capital requirement.
Current Asset Formula is represented as,
However, it is important to note that all of these current assets are typically easily available in a company’s balance sheet.
Explanation of the Current Assets Formula
The formula for calculation of current assets can be derived by using the following two simple steps:
Step 1: 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 securities, accounts receivables, and prepaid expenses, other liquid assets etc.
Step 2: 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 example 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 Securities + Prepaid Expenses.
So, Current Assets of XYZ Limited can be calculated by using the above formula 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, Current Assets of Walmart Inc.’s for the fiscal year ending in January 2018 can be calculated as,
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 report 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 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 very important 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 company 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, then it means that the company’s current assets are not enough to adequately cover the current financial obligations. 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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