TABLE OF CONTENTS Assets are the property that a company owns. The assets may be either tangible, such as money or desks or a building, or intangible, say a patent or a trademark.
The order of the different classes of assets on the balance sheet is based roughly on liquidity, that is, how easy it would be to turn each category into cash. Of course, the cash item is the most liquid. At the bottom, you will see property, plant, and equipment, and other noncurrent assets such as natural resources. Some companies also report the value of intangible assets such as intellectual property and of long-term investments on their balance sheets. Each of the different types of assets is worth considering in its own right, so the following sections take them up one at a time.
Many mistakenly believe that current assets are expected to turn over in one year or less. Well, the real definition is a little more subtle:
Current assets are those assets likely to be used up, converted into cash, or sold within the company's operating cycle or within one year, whichever is greater.
A company's operating cycle is also known as the cash-to-cash cycle. Remember Jane, in Chapter 2? She had to spend cash to purchase raw materials and develop them into products. She then sold the products for more cash. The length of this process is the operating cycle. For Dell Computer, which keeps its parts inventories under a week's supply, it's...
