Current assets are those assets a company expects to use, sell, or convert to cash within one year through normal business operations. They are essential for maintaining liquidity and ensuring smooth business operations.
Inventory, a critical component of current assets, varies depending on the type of business. For instance, a retail company like Walmart has an inventory consisting of a wide range of products, from groceries to electronics. In contrast, a construction company like Caterpillar would have inventory primarily made up of machinery and equipment, reflecting the nature of its business.
Other current assets include cash, cash equivalents (such as treasury bills or money market funds), and short-term investments (like deposits with less than a year of maturity or stocks that can be easily sold). Accounts receivable are amounts customers owe to the company, and prepaid expenses, like taxes paid in advance, are also classified as current assets. These assets are critical for maintaining the cash flow necessary to meet the company's obligations.
