Assets
Assets are resources a company owns or controls that are expected to produce future economic value.
Listed on the balance sheet in liquidity order — how quickly each can be converted to cash. Cash sits at the top; a factory near the bottom.
Current Assets
Current assets convert to cash or are consumed within one year. In standard liquidity order:
- Cash & Cash Equivalents — Money in the bank, money market funds, T-bills maturing within 90 days. The most liquid asset. No ambiguity here.
- Short-Term Investments — Marketable securities the company intends to sell within a year. Publicly traded stocks or bonds held for liquidity, not strategy.
- Accounts Receivable (AR) — Money customers owe the company for goods or services already delivered. Revenue has been recognized, but cash hasn't arrived yet. AR is reported net of an allowance for doubtful accounts (an estimate of what won't be collected).
- Inventory — Goods held for sale or materials used in production. Retailers carry finished goods; manufacturers carry raw materials, work-in-progress, and finished goods. Valued at the lower of cost or net realizable value. If inventory's market value drops below cost, it's written down — a charge to COGS on the IS and a decrease in inventory on the BS. Interviewers ask this because it flows through all three statements.
- Prepaid Expenses — Cash paid in advance for future benefits (e.g., insurance premiums, rent). It's an asset because the company has a right to receive a service it hasn't yet consumed.
Non-Current Assets
Non-current assets provide value beyond one year — the long-lived backbone of the business.
- Property, Plant & Equipment (PP&E) — Physical assets used in operations: land, buildings, machinery, vehicles, furniture. Reported at historical cost minus accumulated depreciation (except land, which isn't depreciated). PP&E is the big-ticket item for capital-intensive businesses.
- Intangible Assets — Non-physical assets with identifiable value: patents, trademarks, licenses, customer relationships. Like PP&E, finite-life intangibles are amortized over their useful life.
- Goodwill — Arises only through acquisitions. Buy a company for $1B when its identifiable net assets are worth $700M, and the $300M difference is goodwill.
Goodwill = the premium paid above fair value of net assets. It captures brand, talent, customer loyalty — things that don't get their own line item. Only created through M&A, never internally.
"What happens to goodwill if the acquired company loses value?" Goodwill isn't amortized — it's tested annually for impairment. If fair value drops below carrying value, you write it down: non-cash charge hits the IS, goodwill decreases on the BS.
Current vs. Non-Current at a Glance
| Current Assets | Non-Current Assets |
|---|---|
| Cash & cash equivalents | PP&E (net of depreciation) |
| Short-term investments | Intangible assets (net of amortization) |
| Accounts receivable | Goodwill |
| Inventory | Long-term investments |
| Prepaid expenses | Deferred tax assets |
Key Takeaways
- Assets are listed in liquidity order — cash first, PP&E and goodwill last.
- Current assets convert to cash within a year; non-current assets provide value beyond a year.
- AR is reported net of an allowance; inventory at the lower of cost or NRV; PP&E at cost minus accumulated depreciation.
- Goodwill only arises from acquisitions and is tested for impairment, not amortized.
- Understanding each line item's definition and how it's measured is essential for interview questions on the balance sheet.