What are Current Assets?

Meaning:

The current means present, immediate, recent and so forth. Therefore, current assets are those assets that are meant and expected, to be converted into cash in an operating cycle quickly or immediately. In the accounting parlance one year is the accepted time period. Therefore all the assets that are expected, to be converted into cash within a year are called current assets.

On the other hand assets that are meant to be held for a long period or for period exceeding one year are called fixed assets or non-current assets.

Examples of current assets:

1. Cash and bank balances
2. Trade receivables also called sundry debtors
3. Inventories or stocks of raw materials, semi-finished and finished goods, consumables, spare parts, etc.
4. Temporary loans and advances that will either be returned or charged to expenses within a year, etc.

Examples of Various Current Assets

Importance/ Significance:

Holding adequate current assets in various forms is both inevitable as well as mandatory for the smooth and uninterrupted operations. Additionally, holding adequate current assets is vital for the liquidity of the organization, meaning ability to make timely payments to suppliers and meeting expenses. Employing adequate current assets thereby improves the current ratio - another important financial indicator.

Having emphasized the need for adequate current assets for the short term health of the company, excess current assets is not a good sign, indicating inefficiency of the operations.

How Value Investors Would have Managed their Portfolios during 2008 Market Crash?

Actual Question:

How did Mr.Jhunjhunwala and Mr Damani manage their portfolios during 2008 market crash?

Answer:

Dear Friend!

I do not know how Mr.Rakesh Jhunjhunwala and Mr.Damani managed their portfolios during the post Lehman Brothers market crash but I know what I did and I presume they too would have done the same - bought more shares! Surprised?

Believe me that is what I exactly did. I used buy and next day the market would have fallen 10–15%. I would buy again. Again crash. Again bought. In this fashion my portfolio nearly halved in size. That meant I had lost 50% of my cash investment!

I was not at all afraid to put more money in - of course I was very nervous. But I kept my nerve and continued buying.

Why?

Because I was a value investor then as I am today. All the shares I owned were of excellent companies.

I think the BSE Sensex plunged from 20827 to below 8000 - a crash of over 60%!

After the complete collapse, I began feeling scared - I was scared out of my trousers - for it was not just about the stock markets but it appeared that the whole world was falling apart - especially the financial world.

Gripped by fear, when the markets started rebounding, after global, concerted action, including India, by way stimulus packages, I made the biggest mistake in my life!

When the Sensex regained 14000–15000 levels by about March 2009, out of sheer panic, I liquidated my portfolio completely with about 250% returns. It was a serious mistake because the market not only regained 21000 by November 2010, I was completely shut out of the market for many years.

In conclusion, I believe Mr.Rakesh Jhunjhunwala and Mr.Damani would have certainly bought during the crisis and would have retained their investments unlike what I did.

Thank you,

Anand