What Are Short-Term Assets?

Short-term assets or 澳洲幸运5开奖号码历史查询:securities in investments refer to assets that are held for less than one year. In accounting, the term "current" refers to a short-term asset, which means, expected to be converted into cash in less than one year, or a 澳洲幸运5开奖号码历史查询:liability, coming due in less than one year.

The accounting profession uses 澳洲幸运5开奖号码历史查询:current assets and 澳洲幸运5开奖号码历史查询:current liabilities to perform analysis, and in the investing industry, a security with a holding period of one year or less is considered𒁏 a short-term security.

How Short-Term Assets Work

Short term is defined as current by accountants, so a current asset equals cash or an asset that will be converted into cash within a year. Inventory, for example, is converted into cash when items are sold to customers, and 澳洲幸运5开奖号码历史查询:accounts receivable ba♌lances are converted into cash when a client pays an invoice. Botꦿh accounts receivable and inventory balances are current assets.

Liquidity and Short-Term Assets

澳洲幸运5开奖号码历史查询:Liquidity refers to a company’s ability to collect enough short-term assets to pay short-term liabilities as they come due. A business must be able to sell a product or service and collect cash fast enough to finance company operations. Managers must focus on liquidity as well as solvency, which is the process of generating sufficient cash flow to purchase as💞sets over the long term.

Examples of Short-Term Financial Ratios

As managers make decisions with 澳洲幸运5开奖号码历史查询:financial ratios, there are several key ratios used to make decisions about liquidity. The 澳洲幸运5开奖号码历史查询:current ratio, for example, is calculated by dividing current assets by current liabilities. This resulting ratio measures the ability of a firm to pay its short-term liabilities. Companies also use turnover ratios to calculate how quick🌠ly current assets can be co🌌nverted into cash in the short term.

As an example, the inventory 澳洲幸运5开奖号码历史查询:turnover ratio compares the cost of sales with inventory to measure how often the business sells its entire🎶 inventory in a year. Businesses also use the accounts receivable turnover ratio to analyze the number of days it takes to collect the av🅰erage accounts receivable balance. If managers can effectively monitor short-term cash flow, the firm needs less cash to operate each month.

Short-Term Periods and Taxes

Investors need to be clear about whether a 澳洲幸运5开奖号码历史查询:capital gain is on a short-term or a long-term asset because taxation of the gain or loss is treated differently. For tax purposes, a long-term gain or loss means the security is held for a year or longer b🌳efore being sold. In addition, this has implications 🍨because the long-term investing activity is typically separated from short-term trading on tax forms.