Page 60 - Finance for Non-Financial Managers

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The Balance Sheet
Other Assets—The “Everything Else” Category
At the bottom of the Assets side on most balance sheets is a
catchall category called, cleverly, “Other Assets.” These are 41
holdings of the company that are neither current nor fixed.
Assets in this category are not expected to become cash in the
next 12 months and they are not real estate, machines, or equip-
ment used in the operation of the company’s business. They
may not even be directly related to the company’s business.
For example, a deposit paid to a landlord from whom the
company leases its offices would be found here, since most
such leases are multi-year commitments. Remember: a lease
deposit is not really a current expense to the company, because
it can be either applied against final rent under the lease or
returned to the tenant when the property is vacated. So a rent
deposit may be disbursed at the beginning of the lease but not
become expense until the end of the lease, if at all.
An investment in another company will be listed here as well.
Wonder Widget apparently has made at least one such invest-
ment. By putting this item in the non-current category, it is say-
ing it intends to hold this investment for an extended period of
time. In other words, it’s not a readily marketable security that is
going to be sold as soon as the price goes up a few points.

Current Liabilities—Repayment Is Key
The Liabilities side of the balance sheet also begins with what’s
current. Once again, liquidity is the measure of the label “cur-
rent,” but in the case of liabilities it is negative liquidity—cash
going out the door. Current liabilities are all those debts of the
company that are expected to be paid within the next 12
months, the same period in which the current assets are expect-
ed to become cash.
The relationship here becomes evident if you think about it
for a moment. Current assets will become cash to pay off cur-
rent liabilities. That is the principle of working capital in any
company. If you look at Wonder Widget’s balance sheet (Figure