Assets can be divided into two categories: current and noncurrent. Current assets are items listed on a company’s balance sheet that are expected to be converted into cash within one fiscal year. Conversely, noncurrent assets are long-term assets that a company expects to hold over one fiscal year and cannot readily be converted into cash. Current and noncurrent assets are located on the balance sheet.
Current Assets
Current assets represent the value of all assets that can be converted to cash and are used to fund the ongoing operations of the company and pay current expenses.
Current assets include:
- Cash and cash equivalents
- Accounts receivable
- Prepaid expenses
- Inventory
- Marketable securities
Cashis considered a current asset because it can be readily converted within one year and can be used to pay short-term debt. Accounts receivable consist of the expected payments from customers to be collected within one year. Inventory is also a current asset because it includes raw materials and finished goods that can be sold relatively quickly.
Noncurrent Assets
Noncurrent assets are a company’s long-term investments or long-term assets that have a useful life of more than one year. Noncurrent assets cannot be easily converted to cash.
Non-current assets include:
- Land
- Property, plant, and equipment
- Trademarks
- Long-term investments and goodwill
Both fixed assets and intangible assets, fall under noncurrent assets.
Fixed assets include property, plant, and equipment since they are tangible, meaning they are physical in nature or can be touched. A company cannot easily liquidate property, plant, and equipment. For example, an auto manufacturer’s production facility would be a noncurrent asset.
Intangible assets are nonphysical assets, such as patents and copyrights. They are considered to be noncurrent assets because they provide value to a company but cannot be readily converted to cash within a year. Long-term investments, such as bonds and notes, are also considered noncurrent assets because a company usually holds these assets on its balance sheet for more than one fiscal year.
Below is a portion of Exxon Mobil Corporation’s (XOM) balance sheet as of the end of March 31, 2018.
- Current assets sit at the top of the balance sheet, highlighted in green, and include receivables due to Exxon, cash, and inventory.
- Noncurrent assets are below current assets, highlighted in blue, representing Exxon’s long-term investments like oil rigs and production facilities listed under property, plant, and equipment.
- Current liabilities are colored in orange and include short-term debt owed by Exxon and taxes.
- Noncurrent liabilities are listed below and include long-term debt obligations.
For more on how to analyze a balance sheet, please read “How Do the Income Statement and Balance Sheet Differ?”