A current asset, in accounting, is any asset that can reasonably be expected to sell, be consumed, or depleted over the course of the business operation within the year or fiscal year. This includes tangible assets (capital assets) and intangible assets (non-productive assets). For each type of asset there is an appropriate method of valuing it, usually expressed as a ratio, where a higher value indicates that it will generate more revenue for the business over the years to come. These ratios are commonly used by businesses, corporations, and government agencies to measure their overall business profitability.
In general, the value of an asset depends upon its age, its estimated market value, the probability of its being replaced, the cost to replace the asset, and the expected future cash flow associated with the asset. The value of assets is also influenced by various other factors such as the duration of the asset’s life, the amount of time needed to replace it, its location on the balance sheet, and how it relates to other assets on the balance sheet. The use of depreciation and amortization, and the application of inventory cost principles are among the important methods used to calculate a company’s capital value.
Capital financing is used to finance the acquisition of existing assets, debt, and plant and equipment. Capital financing does not include interest costs, and it can be categorized into two broad categories – borrowing (borrowing capital) and equity financing. Borrowing involves paying interest on a loan while equity financing refers to the purchase of an ownership interest in an existing asset. All types of capital financing have risk and can affect the ability to produce a profit.
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