Current assets

Current assets ( English current assets are) in business all assets , as part of the operating process for short-term sale , for consumption , for processing or for repayment are determined. They are only in the company for a short period of time and, unlike fixed assets , do not serve business operations on a permanent basis.

General

Current assets are not defined in the Commercial Code , but legally represent a remainder of everything that is not fixed assets. All assets that are to be sold, consumed, processed or repaid by debtors in the short term are therefore included in current assets. They are usually the basis ( stocks of raw materials , consumables and supplies ) or the result ( finished products , cash in hand , bank balances , receivables ) of the operational production process . Assets that should go through the operational processes of procurement , production and sales are assigned to him. Procured materials become finished products through production, the products sold become receivables from the customer and, after payment, into cash in the till or on the bank account. The asset items to be capitalized in current assets are expected to become money or money surrogates within a turnover period or to perish through sale or consumption.

structure

In the balance sheet , current assets to be § 266 para. 2 B HGB on the active designated page and the reasons balance sheet clarity to divide. In the run-up to the preparation of the balance sheet, an inventory of the stocks is necessary.

I. Inventories / inventory assets

1. Raw -, auxiliary - and supplies
2. unfinished goods , unfinished services
3. finished goods and merchandise
4. done payments

II. Receivables and other assets

Receivables and assets with a remaining term of more than one year are shown separately for all four points

1. Accounts receivable from deliveries and services
2. Receivables from affiliated companies
3. Claims against companies with which there is a participation relationship
4. other assets

III. Securities

1. Shares in affiliated companies
2. own shares
3. other securities

IV. Liquid funds

1. Checks , cash in hand , Bundesbank and Postgiro credit balances , credit balances at banks

Assignment

Securities and loans are included twice in the classification scheme of Section 266 of the German Commercial Code, namely for financial assets (A III No. 2, 4 and 5) and under current assets (B II No. 2, 3 and III No. 1, 2 and 3). For this reason, there can be allocation problems between securities and loans of the current assets to the same balance sheet items of the fixed assets. The specific operational type of use determines the allocation to fixed or current assets. For the correct allocation, it is crucial that the fixed assets are binding for the fixed assets, according to which the assets must continuously serve business operations ( Section 247 (2) HGB). For securities, this means that they may only be held in current assets for trading purposes and that they are intended for short-term sale on the balance sheet date . In the case of credit institutions , they are to be kept in the trading book . Checks or bills of exchange or similar securities with a means of payment function - which also belong to the securities - are regularly assigned to the current assets.

The definition of “current assets” according to US-GAAP is somewhat different , according to which only those assets belong to the current assets that are converted into money within the normal business cycle, i.e. sold or consumed. If the business cycle is shorter than a year, the year is used. It is similarly delimited in the International Financial Reporting Standards , with the option to distinguish between fixed and current assets.

Once an assignment has been made, it must generally be retained. A reclassification between fixed and current assets and vice versa is called reallocation and is subject to strict regulations. If an asset item is to be transferred from fixed to current assets or vice versa, its purpose must have changed (Section 247 (2) HGB). According to IAS 39.50-54 there are numerous prohibitions on reallocation, depending on the financial instrument and the valuation category. In the case of credit institutions, Section 340e (2) of the German Commercial Code (HGB) applies , according to which securities to be reclassified as fixed assets must have a remaining term of at least one year.

The allocation to fixed or current assets has consequences for the valuation , because securities of fixed assets are subject to the moderate lower value principle , those of current assets to the strict lower value principle.

Current assets in the balance sheet analysis

The current assets or parts of them are the subject of business indicators in the balance sheet analysis .

Asset intensity

The indicator of asset intensity reflects the relationship between fixed assets and current assets. In asset-intensive companies ( manufacturing industry , transport , infrastructure and telecommunications companies ), fixed assets predominate, in trade and construction , current assets predominate:

${\displaystyle {\text{Vermögensintensität}}={\frac {\text{Anlagevermögen}}{\text{Umlaufvermögen}}}}$

Orbital intensity

The current intensity shows how high the share of current assets is in the total assets in a company:

${\displaystyle {\text{Umlaufintensität}}={\frac {\text{Umlaufvermögen}}{\text{Gesamtvermögen}}}}$

Working capital

While both indicators deal exclusively with the assets side of the balance sheet, the working capital (or net current assets) includes the liabilities side . In particular the - current liabilities from current assets to liabilities from supplies and services - will be deducted:

${\displaystyle {\text{Working Capital}}={\text{Umlaufvermögen}}-{\text{kurzfristige Verbindlichkeiten}}}$

Instead of the entire current assets, the working capital can be refined:

Liquid funds ( cash in hand , bank balances , liquid securities )

${\displaystyle +}$ Accounts receivable from deliveries and services

${\displaystyle +}$ Stocks

${\displaystyle +}$done payments

${\displaystyle -}$ liabilities from goods and services

${\displaystyle -}$ payments received

${\displaystyle =}$ Working capital

With positive working capital , the current assets were not only financed by short-term liabilities, but also by long-term financing. This is beneficial because, in particular, the risk of follow-up financing is reduced. With negative working capital , the fixed assets are partly financed by short-term borrowed capital , which contradicts the “golden rule of balance” . While industrial companies usually have positive working capital , retail companies can also achieve negative working capital due to the different financing structure . Here, negative working capital can even be a sign of particular market power. The working capital also provides a measure of liquidity (especially third-degree liquidity is) of the company.

Working capital ratio

The working capital ratio (WCR) is calculated from the working capital by relating it to sales:

${\displaystyle {\text{Working Capital Ratio}}={\frac {{\text{Umlaufvermögen}}-{\text{kurzfristige Verbindlichkeiten}}}{\text{Umsatz}}}}$

See also

• Stock in circulation
• circulating capital

literature

• ICV: Working Capital Management. Guide for the sustainable optimization of inventories, receivables and liabilities. Haufe-Lexware Verlag, Freiburg im Breisgau 2013, ISBN 978-3-648-04693-7 .
• Adolf G. Coenenberg among others: Annual financial statements and annual financial statements analysis. 21st edition. Schäffer-Poeschel Verlag, Stuttgart 2009, ISBN 978-3-7910-2770-8 .
• Michael Griga, Raymund Krauleidis: Creating and reading balance sheets for dummies. 2nd Edition. Wiley-VCH Verlag 2010, ISBN 978-3-527-70598-6 .
• Christian A. Meyer: Working capital and company value. Gabler, Wiesbaden 2007, ISBN 978-3-8350-0862-5 .
• Gerhard Scherrer: Accounting according to the new HGB. 3. Edition. Vahlen 2010, ISBN 978-3-8006-3787-4 .
• Harald Wedell, Achim A. Dilling: Fundamentals of accounting: bookkeeping and annual accounts. Cost and performance accounting. 13th edition. NWB-Verlag, 2010, ISBN 978-3-482-54783-6 .

Individual evidence

1. ↑ Peter Ulmer: HGB accounting law , part 1, 2002, p. 413
2. ↑ Werner Frick: Accounting according to the company law , 2007, p. 139
3. ^ Karlheinz Küting / Claus-Peter Weber: The balance sheet analysis: textbook for assessing individual and group financial statements , 7th edition, 2004, ISBN 3-7910-2260-1 , p. 538 f.
4. ↑ Jürgen Stauber: Financial instruments in the IFRS financial statements of non-banks , 2012, p. 179 f.
5. ↑ HFA 1.014, reallocation and valuation of receivables and securities according to HGB of January 9, 2009, p. 59
6. ↑ Gerrit Brösel: International Accounting, Examination and Analysis , 2004, p. 82
7. ^ Jörg Wöltje: Financial figures and company valuation . Haufe, Freiburg 2012, ISBN 978-3-648-02511-6 , pp. 44 f .
8. ↑ Reinhard Bleiber: Working Capital Management , 2015, p. 19
9. ↑ Erich Lies: Success factors of working capital management , 2011, p. 24

Please note the information on legal issues!