analyzing investing activities in financial statement
1.0 Introduction
Ryan C. Fuhrmann explains that an investing activity usually refers to cash spent on investments in capital assets such as plant and equipment, which is collectively referred to as capital expenditure, or capex Its mean that investing activities refer to Assets are resources controlled by company for the purposed of generating profit. The assets can classified into two (2) types- current and noncurrent: (1) Current asset (short term) is resources or claims to resources (balance sheet item) that are expected to be sold, collected, or used within one year or the operating cycle, whichever is longer; and (2) Non current asset (long term) is resources or claims to resources that are expected to yield benefits that extend beyond one year or the operating cycle, whichever is longer.
2.0 Current Asset
A current asset is an item on an entity’s balance sheet can be converted into cash within the operating cycle of the company or within one year .Examples of current asset such as cash and cash equivalent, receivables, prepaid expenses and inventories.
2.1 Cash, Cash Equivalents and Liquidity – John J. Wild refer that cash can consist of currency, coins and amounts on deposit in bank accounts, checking accounts, and some savings accounts, meanwhile cash equivalent is short-term, highly liquid investments that are readily convertible to a known cash amount. When refers to cash, most important analysis is highly liquid in short- term investments through (1) readily convertible into cash, and (2) near to maturity that minimal risk of price changes due to interest rate movements or meaning that close to maturity date and not sensitive to interest rate changes, which can carry maturities of three months or less , ie, short term treasury bills, commercial paper and money market funds. The liquidity concept is important for investing analysis to shows that amount of cash and cash equivalents the company has on the hand and the amount of cash can
Ryan C. Fuhrmann explains that an investing activity usually refers to cash spent on investments in capital assets such as plant and equipment, which is collectively referred to as capital expenditure, or capex Its mean that investing activities refer to Assets are resources controlled by company for the purposed of generating profit. The assets can classified into two (2) types- current and noncurrent: (1) Current asset (short term) is resources or claims to resources (balance sheet item) that are expected to be sold, collected, or used within one year or the operating cycle, whichever is longer; and (2) Non current asset (long term) is resources or claims to resources that are expected to yield benefits that extend beyond one year or the operating cycle, whichever is longer.
2.0 Current Asset
A current asset is an item on an entity’s balance sheet can be converted into cash within the operating cycle of the company or within one year .Examples of current asset such as cash and cash equivalent, receivables, prepaid expenses and inventories.
2.1 Cash, Cash Equivalents and Liquidity – John J. Wild refer that cash can consist of currency, coins and amounts on deposit in bank accounts, checking accounts, and some savings accounts, meanwhile cash equivalent is short-term, highly liquid investments that are readily convertible to a known cash amount. When refers to cash, most important analysis is highly liquid in short- term investments through (1) readily convertible into cash, and (2) near to maturity that minimal risk of price changes due to interest rate movements or meaning that close to maturity date and not sensitive to interest rate changes, which can carry maturities of three months or less , ie, short term treasury bills, commercial paper and money market funds. The liquidity concept is important for investing analysis to shows that amount of cash and cash equivalents the company has on the hand and the amount of cash can
References: 1. Financial Statement Analysis: Eleventh Edition, John J. Wild / Leopold A. Bernstein/ K.R Subramanyam (McGraw Hill International), (2014) 2. Cash Flow Statement: Analyzing Cash Flow From Investing Activities, Ryan C. Fuhrmann on November 25, 2013, Retrieved on June 1, 2014 from http://www.investopedia.com/articles/investing/112513/cash-flow-statement-analyzing-cash-flow-investing-activities.aspent 3. Definition of Current Asset, Accounting Tool, Retrieved on June 1, 2014 from http://www.accountingtools.com/definition-current-asset 4. Financial Accounting Terms Accounts Receivable (2014) Retrieved on May 31, 2014 from http://accountingstudy.com/accounting-courses/financial-accounting-terms-dictionary/accounts-receivable.html 5. Definition of 'Prepaid Expense ' (2014)Retrieved on May 31, 2014 from http://www.investopedia.com/terms/p/prepaidexpense.asp 6. Types of Inventory Costing Methods David Ingram(2014), Demand Media Retrieved on May 31, 2014 from http://smallbusiness.chron.com/types-inventory-costing-methods-11444.html 7. Accounting for investment securities, Mcgraw-hill, Retrieved on May 31, 2014 from http://highered.mcgraw-hill.com/sites/dl/free/ 0073527122/788594/edm271urity sec22_appe_738_746.pdf 8. Definition of “Derivative Securities” ,Retrieved on May 31, 2014 from http://www.investopedia.com/terms/d/derivative.asp