Key Elements in Financial Analysis: Assets
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We hope you''re all doing well.
Do pray that the Mahersaham team is blessed with ease in sharing stock market knowledge with all of you.
Right, today I will continue the discussion on the key elements in financial analysis for part 2.
In Part 1, I briefly explained the 5 key elements.
For this series, I want to explain in detail the first element, which is assets.
What Are Assets?
An asset is cash and property such as land, houses, and buildings owned by an individual, a company, or an organisation.
It is a valuable resource used to carry out business activities in order to generate income for the business.
Terms Used in Assets
There are several terms commonly used in financial analysis.
These terms are certainly less familiar to those who have not studied accounting.
So for those who haven''t studied accounting but wish to carry out financial analysis before investing in a company, let''s learn together today.
- Cash
- Cash equivalents
- Accounts receivable
- Trade receivable
- Prepaid expenses
- Inventory
- Property
- Plant
- Equipment
Cash & Cash Equivalents
Everyone surely knows that cash means money in hand.
But what exactly are cash equivalents?
Cash equivalents are items that are nearly equal in value to cash.
Can you guess what they are?
When a company has surplus funds, the money is placed in marketable securities or in the money market.
What are marketable securities and money market?
These are assets that can be quickly converted into cash.
Essentially, it''s about keeping surplus money in a place where the company can easily withdraw it when needed.
The main point is that it''s not difficult to withdraw the money that has been saved.
Accounts Receivable
It is an asset account on the balance sheet that represents money owed to the company in the short term.
How does this happen?
When a company allows buyers to purchase their goods or services on credit.
For example, a customer buys a product from Company ABC using a credit card.
Although the customer has already received the product, they have not yet paid for it.
Therefore, the customer''s payment will be recorded under accounts receivable.
Trade Receivable
In short, it is the total amount that a company has billed its customers for goods and services already delivered but for which payment has not yet been received.
Prepaid Expenses
This is a type of asset created when a business makes an advance payment for goods or services that will be received in the future.
As long as we have not received the goods or services, the deposit (advance payment) still belongs to us.
Inventory
This refers to a company''s stock of goods.
For example, Maher Niaga sells several Mahersaham Merchandise products, and the products that have not yet been sold are the company''s inventory.
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Property, Plant & Equipment
These are long-term assets (long term assets).
For example, machinery used in operations.
Some machinery has a lifespan of up to 5-7 years.
FAQ - Frequently Asked Questions
1. What are assets in financial analysis?
Assets are resources owned by a company to generate income or facilitate business operations. Assets are divided into current assets and non-current assets (long-term assets).
2. Why are assets important in stock analysis?
Assets help investors assess the financial strength of a company. Companies with strong assets are typically more stable and capable of generating income consistently.
3. What is the difference between current assets and non-current assets?
Current assets are assets that can be converted into cash within a year, such as inventory and accounts receivable. Non-current assets are long-term assets such as property, plant, and equipment.
4. How do you use asset information to make investment decisions?
Investors can compare total assets against a company''s liabilities to assess financial health. A high ratio of assets to liabilities indicates the company is in a strong financial position.
Want to deepen your understanding of financial analysis for stock investing? Open a CDS account with Mahersaham and start your investment journey with solid knowledge. Also download our free stock ebook for a comprehensive guide.