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Key Takeaways
- Current assets can be converted to cash within a year.
- Noncurrent assets take over a year to convert to cash.
- Marketable securities are liquid instruments like stocks and Treasuries.
- PP&E are noncurrent, tangible, and not quickly liquidated.
- Noncurrent assets are depreciated over their useful life.
Overview of Current vs. Noncurrent Assets
Current assets are liquid and can be turned into cash within a year. Examples include cash, inventory, and marketable securities. They help businesses pay short-term debts and fund daily operations.
Noncurrent assets are less liquid, taking more than a year to convert to cash. Some common examples of noncurrent assets are real estate, trademarks, and other long-term investments.
Understanding both asset types is necessary for assessing a company’s financial position and risk.
Current Assets: A Closer Look
Current assets are considered short-term assets because they generally are convertible to cash within a firm’s fiscal year. They are the resources a company needs to run its day-to-day operations and pay its current expenses. Current assets are typically listed on the balance sheet at their market price.
Examples of current assets include:
- Cash and Cash Equivalents: These assets may be converted to cash within 12 months to pay for a company’s short-term debt.
- Accounts receivable (AR): This type of current asset consists of the payments that will be collected from the company’s customers within one year.
- Prepaid Expenses: This type of current asset is an expense that is paid for in advance but hasn’t occurred yet, such as rent.
- Inventory: This category includes raw materials and finished goods that can be sold relatively quickly. Companies should maintain a consistent level of inventory to run their businesses.
- Marketable Securities: These are assets that can be easily sold on public exchanges for cash like commercial paper.
Important
Marketable securities are highly liquid instruments that include stocks, Treasuries, commercial paper, exchange-traded funds (ETFs), and other money market instruments.
Noncurrent Assets and Long-Term Investments
Noncurrent assets are a company’s long-term investments, and cannot be converted to cash easily within a year. They are required for the long-term needs of a business and include things like land and heavy equipment.
Noncurrent assets are reported on the balance sheet at the price a company pays for them. It is adjusted for depreciation and amortization and is subject to being re-evaluated whenever the market price decreases compared to the book price.
Some of the most common types of noncurrent assets are land, property, plant, and equipment (PP&E), trademarks, long-term investments, and goodwill, which is when a company acquires another company.
These assets are often categorized as tangible and intangible assets. Intangible assets are nonphysical assets, such as patents and copyrights. Although they provide value, they 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 them on its balance sheet for over a year.
Fast Fact
Some noncurrent assets may also be classified as fixed assets. This category includes PP&E because they are tangible, which means they can be physically manipulated. A company cannot liquidate its PP&E quickly. For example, an auto manufacturer’s production facility would be labeled a noncurrent asset.
Comparing Current and Noncurrent Assets
| Current Assets | Noncurrent Assets | |
| Convertibility | Liquidated within a year | Cannot be converted into cash within one year |
| Uses | Immediate or current needs | Long-term or future needs |
| Types | Cash and cash equivalents, short-term investments, AR, and inventories | Long-term investments, PP&E, goodwill, depreciation, amortization, and long-term deferred tax assets |
| Value | Market prices | Cost-less depreciation |
| Tax Implications | Taxed as income | Capital gains taxes apply |
| Revaluation | Inventories are subject to revaluation | Occurs when a tangible asset’s market value decreases compared to its book value |
Real-World Example: Current vs. Noncurrent Assets of ExxonMobil
The portion of ExxonMobil’s (XOM) balance sheet pictured below from its 10-K 2021 annual filing displays where you will find current and noncurrent assets.
- Current assets generally sit at the top of the balance sheet. Here, they include receivables due to Exxon, along with cash and cash equivalents, AR, and inventories. Total current assets for fiscal year end 2021 were $59.2 billion.
- Noncurrent assets are listed below current assets. These represent the company’s long-term investments, like oil rigs and production facilities that come under PP&E. Total noncurrent assets for fiscal year end 2021 were $279.8 billion.
The combined total assets are located at the very bottom. For the fiscal year-end of 2021, they were $338.9 billion.
ExxonMobil
What Are Examples of Current Assets and Noncurrent Assets?
Examples of current assets include cash, marketable securities, cash equivalents, accounts receivable, and inventory. Examples of noncurrent assets include long-term investments, land, intellectual property and other intangibles, and property, plant, and equipment (PP&E).
What Is the Difference Between a Fixed Asset and a Noncurrent Asset?
A fixed asset is a type of noncurrent asset. Noncurrent assets include a variety of assets, such as fixed assets, intellectual property, and other intangibles. In general, a fixed asset is a physical asset that cannot be converted to cash readily. Fixed assets include property, plant, and equipment, such as a factory.
Why Are Noncurrent Assets Depreciated?
Noncurrent assets are depreciated to spread their costs over the time they are expected to be used. Noncurrent assets are not depreciated to represent a new or replacement value but simply to allocate the asset’s cost over time.
The Bottom Line
Current assets are converted to cash within a year, while noncurrent assets take longer. Distinguishing between the two is important for businesses, analysts, and investors because it helps them visualize a company’s financial position and risk. It’s important to evaluate both when assessing a company’s liquidity, financial health, and investment suitability.
Investors should distinguish between these assets when gauging a company’s cash flow management and investment potential.
