However current assets are expensive to hold they

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However, current assets are expensive to hold (they must be stored, insured, monitored, financed, and so forth)-and they typically generate relatively low returns. As a result, companies seek to maintain only just enough current assets to cover liquidity needs, but not so much to unnecessar- ily reduce income. Long-Term Assets The second section of the balance sheet reports long-term (noncurrent) assets. Long-term assets include the following: Property, plant and equipment (PPE), net-land, factory buildings, warehouses, office buildings, machinery, motor vehicles, office equipment and other items used in operating activities ("net" refers to subtraction of accumulated depreciation, the portion of the assets' cost that has been expensed); Long-term investments-investments that the company does not intend to sell in the near future; Intangible and other assets-assets without physical substance, including patents, trade- marks, franchise rights, goodwill and other costs the company incurred that provide future benefits. Long-term assets are not expected to be converted into cash for some time and are, therefore, listed after current assets. Measuring Assets Most assets are reported at their original acquisition costs, or historical costs, and not at their current market values. The concept of historical costs is not without controversy. The controversy arises because of the trade-off between the relevance of current market values for many business decisions and the reliability of historical cost measures. To illustrate, imagine we are financial analysts and want to determine the value of a company. The company's value equals the value of its assets less the value of its liabilities. Current market values of company assets (and liabilities) are more informative and relevant to our analysis than are historical costs. But how can we determine market values? For some assets, like marketable securities, values are readily obtained from online quotes or from The Wall Street Journal. For other assets like property, plant, and equipment, their market values are far more subjective and I Technically, current assets include those assets expected to be converted into cash within the upcoming fiscal year or the company's operating cycle (the cash-to-cash cycle), whichever is longer. Fortune Brands (manufacturer of Jim Beam Whiskey) provides an example of a current asset with a cash conversion cycle of longer than one year. Its inven- tory footnote reports: "In accordance with generally recognized trade practices, bulk whiskey inventories are classified as current assets, although the majority of such inventories, due to the duration of aging processes, ordinarily will not be sold within one year."
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Module 2 I Overview of Business Activities and Financial Statements 2-6 - ult to estimate.
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