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What are Current Assets?

Current Assets are items on a balance sheet that are either cash or are going to be cash in the near future. The current assets section of a balance sheet is an indication of cash flows and liquidity. The assets are usually listed in order of liquidity, or the amount of time that it will take for them to become cash. This section includes cash, accounts receivable, prepaid expenses, inventory, supplies, and temporary investments. (The order given here is not necessarily the order of liquidity found on a balance sheet.) Continue reading...

What is a Non-Current Asset?

A non-current asset is an asset on the balance sheet that is not expected to convert into unrestricted cash within a year’s time. Non-current assets may include such things as intellectual property and production/operations equipment - meaning they likely do not have a need to convert to cash. From a balance sheet standpoint, non-current assets are capitalized rather than expensed - meaning the company can allocate the asset’s cost of the asset over the number of years for which the asset will be used, instead of allocating it all in the year it was purchased. Continue reading...

What is the 'Non-Current Assets to Net Worth' Ratio?

The non-current assets to net worth ratio will give the analyst an idea of how much of a company’s value is tied-up in non-current assets. As a quick refresher, ‘non-current assets’ are those that most likely will not convert to cash within a year’s time, also known as a long-term asset. Where a company’s non-current asset to net worth ratio lies depends on the industry, but generally speaking a company wants to avoid having that ratio rise above 1 to 1.5. That means the company is highly illiquid, and could be vulnerable in the event of an economic shock. Continue reading...

What are Accounts Receivable?

Accounts Receivable is part of the Assets on a Balance Sheet, and it details the money due to the company from its customers or debtors in the near future. Accounts Receivable will include money which should be received by the company from those who owe it. This appears in the Current Assets section of the Balance Sheet. The money should be receivable within the next 30 or 90 days, generally. This might be rent payments or other bills which are paid regularly or after the goods or services have been rendered. An account receivable also might include interest due. Continue reading...

What is the Current Ratio/Liquidity Ratio?

The current ratio is a measure of a company’s immediate liquidity, calculated by dividing current assets by current liabilities. The value of this ratio lies in determining whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables and inventory) are sufficient enough to pay-off its short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). Generally speaking, the higher the current ratio, the better. Continue reading...

What is Working Capital?

Working capital is computed by subtracting a business’s current liabilities from its current assets. Current means that the assets and liabilities exist within the current year. The appropriate amount of working capital will vary from business to business. Some businesses have a need for a large amount of working capital, and some can maintain a healthy balance sheet with relatively little working capital. Whatever the situation is for a particular business, the approximate calculation for the amount of working capital that they have to use is arrived at by subtracting current liabilities from current assets. Continue reading...

What is a Quick Ratio?

The quick ratio (also known as an “acid test”) is a financial ratio used to measure how well equipped a company is to meet its short-term liquidity needs. It basically measures how much cash (or assets easily and quickly converted to cash) a company has available to meet its short-term liquidity obligations. Since inventories are assets but are not necessarily liquid, they are excluded from the calculation. Continue reading...

What are Current Yields?

The current yield on a bond takes into account its annual interest payment but also the price at which it can be sold. The yield on a bond held to maturity is fairly straightforward. However, if the bond you are holding is trading at a price higher or lower than where you purchased it, the current yield would be different than the yield to maturity. For example, if you purchased a 5% bond at a price of $100, but the current market price was $90, your current yield would be significantly lower than 5%. To calculate, simply divide annual cash inflows by market price. Continue reading...

What is Asset Turnover?

Asset Turnover is a metric that investors and companies can use to determine how efficiently a business uses its assets to create revenue. Asset Turnover is a ratio of the value of a company’s sales or revenues relative to the value of its assets. It can be calculated simply by dividing sales or revenue by total assets. The higher an asset turnover ratio for a company, the better that company is performing - since it implies that the company is generating a high level of sales and revenue per unit of assets. Continue reading...

What is Return on Net Assets?

Return on Net Assets is a calculation used to determine how well a company performs, relative to its resources. Return on Net Assets gives investors an idea of how well a company uses its resources to generate profits. Net assets includes not only fixed, tangible assets, but also the net working capital of a business. Working capital is defined as Current Assets minus the Current Liabilities of the business. The net profits for a period are divided by the net assets to arrive at the Return on Net Assets. Continue reading...

What is a currency basket?

What is a currency basket?

Currency baskets are composed of weighted amounts of certain currencies. The most common use of a currency basket is as a benchmark for certain economic analysis, but it can also be used as a unit of account where an international organization has constituents that use various currencies. A basket of currencies is a weighted index of various currencies which serves a specific purpose as a benchmark or as a unit of account. Continue reading...

What are currency futures?

What are currency futures?

Currency futures are derivative contracts that trade on regulated exchanges around the world. Like forward contracts, they name a specific amount of one currency which is to be exchanged for a specific amount of another currency at a future date. Futures name a specific amount of one currency which will be exchanged for a specific amount of another currency at a future date. Like other derivative contracts that trade on exchanges (e.g., options), futures are transferable and are traded as the market calls for up until their expiration. Investors can short them (sell to open) and hold them long (buy to open), and can close their positions as they see fit without riding out the contract to the expiration date. Continue reading...

What is a currency symbol?

What is a currency symbol?

Currency symbols are characters written or typed in a specific arrangement alongside the numerical values of a currency amount, to denote the kind of currency in which the amount of money is held. An example would be the dollar sign ($), which is placed at the beginning of the numbers which describe the amount of currency in question, despite the fact that in most languages the word “dollars” follows the numbers when spoken. Many currencies have their own symbol but not necessarily all do. Continue reading...

What Does Asset Mean?

Any item of economic value that a person or entity owns, benefits from, or has use of in generating income. Assets can generally be converted to cash, but economic circumstances often determine whether the asset can be sold at fair value. Some common examples of assets are cash, stocks, paid-for real estate, inventory, office equipment, jewelry, artwork, or other property of value that can be counted towards a person’s estate or a corporation’s balance sheet. Continue reading...

What is the currency carry trade?

What is the currency carry trade?

Assets that are held are sometimes analyzed in terms of the cost of carrying them, called the cost of carry. In certain situations, there may be a potential for profit if an asset that might otherwise have a cost of carry could be traded for an asset that actually generates profit. The arbitrage opportunity that exists in that space, and the market formed by it, is sometimes called the carry trade, or the currency carry trade where it applies to currency. Continue reading...

What is asset allocation?

What is asset allocation?

Asset allocation is theoretically the best way to control the return you experience, through diversification and rebalancing. Asset allocation theories provide you with mechanisms to diversify your money among various asset classes, such as stocks, bonds, real estate, commodities, precious metals, etc. The benefit of asset allocation is twofold: first, nobody knows which asset class will perform better at any given time, and second, various asset classes are not entirely correlated or have a negative correlation, which provides a hedge. If one asset class appreciates significantly, the other might not, but, if the allocation is done correctly, this may be exactly what the investor was looking for. Continue reading...

What are Tangible Assets?

Tangible assets are the property of a company that are tangible and can be quickly liquidated. This includes current-period accounts receivable and money in checking, savings, and money-market accounts. Buildings, land, equipment and inventory are all tangible assets as well. Tangible assets are an important part of a company’s book value. For most valuations, intangible assets such as patents, other intellectual property, and goodwill are not included. Continue reading...

What is an asset mix?

What is an asset mix?

An asset mix is the blend of major asset classes in a portfolio, which should be constructed based on the risk tolerance, time horizon, and goals of the investor. A common example of an asset mix is the 70/30 stock-bond mix, where 70% of the assets are invested in stocks and 30% in bonds. “Mix” is one way of describing the asset allocation of a portfolio, but it also describes the practice of diversifying among asset classes. The core asset classes that most people consider are stocks, bonds, cash equivalents, real estate, and commodities. Continue reading...

What is currency depreciation?

What is currency depreciation?

The value of a currency can depreciate in relation to the value of other currencies or to another benchmark. Currencies can have their value determined by the cost of a basket of consumer goods from one period to another, but this is really just a measure of inflation. Inflation (or “deflation”) is a subset of the appreciation/depreciation metric, but changes in the exchange rates between currencies are typically seen as the most relevant measure of a currency’s value. Continue reading...

What is a currency peg?

What is a currency peg?

The currency pairs you are most familiar with, such as EUR/USD or USD/JPY, are floating currencies, meaning that their value changes freely with market forces. Some countries have chosen to peg their currency to another currency, most commonly the USD. The exchange rate between their currency and the peg currency never changes, unless policy makers tweak things slightly. Currencies can also be pegged to commodities or baskets of other currencies. Pegged currencies are not discussed often in the Forex market because their value is tied directly to the value of another, more liquid floating currency, or to a basket of currencies, or to a commodity. Continue reading...