When an organization faces a crisis, what is the cash in the safe? The number of current assets reveals a secret.

Many investors often overlook an important item on the balance sheet, which is Current Assets. This section is like a company’s emergency cash account, indicating how quickly an organization can access funds when the world faces disruptions like those seen in the scientific world since 2020.

Cash in hand vs. Asset Value: What’s the difference?

Financial statements separate assets into two main groups. The first is money that can be converted into liquid assets within 12 months, called (Current Assets). The second group includes assets that require a longer period to convert, such as land, buildings, machinery, (Noncurrent Assets).

Current Assets (Current Asset) are designed to describe how long a company can pay its expenses if it stops selling. It’s like asking, “If there were no income today, how many months could the system survive?”

Noncurrent Assets (Noncurrent Asset) are long-term assets that are difficult to sell but are vital for the company’s operations. Generally, the more current assets a company holds, the better it can withstand financial crises.

How many types of current assets are there, and how risky is each?

Cash and Bank Deposits - The safest

Cash (Cash) is the most valuable asset, immediately usable for purchases, accepted by any financial institution. The problem is, it doesn’t generate returns. Companies holding too much cash are like hoarding gold in a hole.

Cash Equivalents (Cash Equivalents) are similar to cash but offer interest, such as savings accounts or fixed deposits. The risk here depends solely on the strength of the bank.

Short-term Investments - Higher risk

When a company has excess cash, it often invests in stocks, gold, or debt securities (Short Term Investment), intending to convert back to cash soon. The advantage is earning returns, but the risk is that prices may fluctuate, potentially leading to losses when sold.

Trade Receivables - Concerning

When a company sells goods to customers on credit, this is called Trade Receivables (Receivable) or Notes Receivable (Notes Receivable). The issues are twofold: customers may default, and the company must wait to collect the money. This requires careful monitoring because, in tough times, receivables may become uncollectible.

Inventory - The need to “breathe”

Inventory (Inventory) includes raw materials or finished goods waiting to be sold. This is one of the most critical areas for investors to watch because it can turn into “sunk costs” if the goods don’t sell or deteriorate in storage.

Prepaid Expenses and Unearned Revenue

Companies may pay in advance for insurance, rent, or licenses. These are called Prepaid Expenses. Additionally, there is Unearned Revenue, which is money received but not yet earned.

Real-life example: What is Apple, and is it important?

Apple (AAPL) is the world’s most valuable company with excellent liquidity. Since the COVID-19 outbreak, senior executives like Tim Cook have confirmed that “liquidity is not an issue.”

Look at the figures:

At the end of 2019: Apple had total current assets of $162.8 billion, including cash $59 billion$135 .

At the end of 2020: Current assets slightly decreased to **(billion$90 **, but interestingly:

• Cash decreased by 46% $48 from )to (billion$37
• Receivables increased by 62.7% $60 from )to ###billion###

This indicates that Apple might have changed its billing policies or that collection metrics have decreased, which investors need to monitor closely.

How to read current assets like a pro

Step 1: Look at the total number

Is current assets higher or lower compared to the previous year? An increase suggests a strong business; a decrease could be a warning sign.

Step 2: Assess asset quality

Not all current assets are equal. Cash and bank deposits are “real” assets, while receivables may not be collectible, and inventory might be unsellable or deteriorate.

Step 3: Analyze relationships

Cash decreasing but receivables increasing = the company may need to wait for collection. Inventory increasing = potential sales issues.

Summary: Why do investors need to focus on current assets?

Current Assets act as a vacuum tube indicating a company’s liquidity. A high figure suggests the company can survive longer during crises; a low figure indicates higher risk.

But more important than the total number is the quality of each asset type. Cash and bank deposits are safe, while receivables and inventory carry risks.

Smart investing requires digging into these details, not just looking at the big numbers on the first page of the financial statements. Today, understanding financial statements and analyzing figures from current assets down to liabilities is a skill that investors can no longer ignore.