Final answer:
Current assets are assets that a company expects to convert to cash or use up within one year or the operating cycle. These are critical for a company's liquidity including cash, inventory, and marketable securities, and are a fundamental part of the balance sheet. Financial assets help firms raise capital and manage their short and long-term financial operations.
Step-by-step explanation:
Assets that a company expects to convert to cash or use up within one year or the operating cycle, whichever is longer, are called current assets. These may include items such as cash, inventory, marketable securities, pre-paid liabilities, and other liquid assets that can be readily converted into cash. Firms value current assets for their ability to fund day-to-day operations and fulfill short-term financial obligations. Understanding the composition and management of current assets is important for analyzing a company's liquidity and financial health, which is typically presented in a company's balance sheet. This financial statement reflects how well a company can meet its short-term liabilities with its short-term assets.
Financial assets, which are distinct from physical assets like machinery or real estate, represent investments in the economic resources of a company. These may include stocks, bonds, or bank deposits, and are key to a firm's ability to raise capital through various means such as borrowing or selling equity. The liquidity of financial assets is a vital consideration for firms, particularly in the context of asset-liability time mismatch, which occurs when a company must manage short-term liabilities against longer-term assets.