What are current assets?

Current assets are defined as cash and other assets that are expected to be converted into cash within one year or within the operating cycle, whichever is longer. This category includes items like cash itself, accounts receivable, inventory, and other short-term investments. These assets are crucial for managing day-to-day operations and meeting short-term obligations.

Understanding current assets is essential for assessing a company’s liquidity and financial health. High levels of current assets indicate that a company can easily cover its short-term liabilities, which is a positive sign for creditors and investors. In contrast, the other options do not align with the definition of current assets. Investments that cannot be liquidated are classified as long-term, while long-term physical assets are generally fixed assets, and liabilities represent what a company owes rather than what it owns.