[MUSIC] Last time, we introduced a basic structure of a balance sheet. In this video, we will define what current and non-current assets are, as well as look at the different items that constitute these two sub-categories of assets. This will help you in understanding the asset side of the balance sheet in greater detail. We have already seen that assets tell us how the company uses its resources. Assets in turn are broken down into current and non-current assets. Current assets are those that are expected to be sold, converted to cash, or consumed within the next year. Everything else is a non-current asset. Example of current assets are cash and cash equivalents, inventories, and receivables. Examples of non current assets are plant, property, and equipment, typically denoted by PP&E. Over the next few videos, we will use Amazon.com, Inc., financial statements from December 2015, and where necessary, also from December 2014, to better illustrate and understand the various items that form each financial statement. The financial statements are from Amazon.com's annual report for the year ending 2015. Let's take a detailed look at the various items that constitute current assets. The first item under current assets is cash and cash equivalents. It includes currency, coins, checks received but not yet deposited, checking accounts, petty cash, savings accounts, money market accounts, and short-term highly liquid investments, with the majority of three months or less at the time of purchase. At the end of December 2015, Amazon had cash and cash equivalents worth $15.89 billion on hand. The next item on the current assets is marketable securities. These include investments in various types of financial securities, like stocks, bonds, etc. They are not as liquid as cash and cash equivalents, but may be converted to cash easily. Amazon had marketable securities worth $3.92 billion at the end of 2015. Cash and cash equivalents, and marketable securities, make up the investments part of current assets. The other two items that constitute current assets are related to the company's operations. These are inventories and accounts receivables. Inventories include all raw materials that the company has bought, all work in progress products, as well as all finished goods. Not all these sub-items may be relevant to all companies. For example, companies in the services industry are unlikely to have a large inventory of finished goods or even work in progress. Almost all of its inventory may be the cost of supplies that the company has bought, which will be used in the delivery of its services. For Amazon, inventories stood at $10.24 billion at the end of 2015. Books, consumer electronics, and other consumer goods that it sells through its website, is likely to make up a large fraction of this $10.24 billion. The final item on the current assets part of the balance sheet is accounts receivable. This includes all the money a company's clients owe it. When companies sell their products and services, they will not always insist on cash payment as soon as the product or service is delivered. The client or customer may be given a few days to a few months to pay. In other words, the client is extended credit for a fixed period of time. While the company waits for the customer to pay, the value of the sale is recorded as an account receivable. This signifies that the company has delivered its product or service to the client or customer, but it has yet to be paid. The client has an obligation to the company and, hence, it is an asset for the company. Amazon had accounts receivables of $6.42 billion at the end of 2015. In its annual report, Amazon notes that most of this amount is due from its customers, vendors, and sellers. Adding all four components gives the company's current assets. This represents cash as well as assets that will be converted to cash within one year. Amazon's current assets add up to $36.47 billion at the end of 2015. Turning our attention to non-current assets, the largest and most important contribution to non-current assets is plant, property, and equipment, PP&E. This includes all land, buildings, machinery, office equipment, vehicles, furniture, and fixtures, that a company uses to run its business. Amazon had $2.84 billion in PP&E at the end of 2015. Amazon's annual report for 2015 notes that this includes buildings and land that they own, along with property that they have acquired under build-to-suit financing and capital lease arrangement. Their equipment includes assets such as furniture and fixtures, heavy equipment, servers and networking equipment, and internal use software and website development. The other major part of non current assets is intangible assets, which includes nonphysical assets such as patents, trademarks, copyrights, goodwill, and brand recognition. These intangible assets add to a company's future worth and, at time, may be more valuable than tangible assets. Amazon had goodwill worth $3.76 billion under non current assets at the end of 2015. Additionally, it had some miscellaneous other assets worth $3.37 billion. PP&E, goodwill, and other assets, totaled up to $28.97 billion in non current assets at the end of 2015. Given current assets worth $36.47 billion and non current assets worth $28.97 billion, Amazon had total assets worth $65.44 billion at the end of 2015. Remember, assets represent how a company uses its resources. But where do the $36.47 billion in resources come from? This is what the liabilities and shareholders equity part of the balance sheet tells us. We will look at a detailed breakdown of a company's liabilities next time. [MUSIC]
