One of the main components of a balance sheet is the current assets. So what are current assets ? Current assets are assets which can be easily converted to cash within a relatively short period of time. I have highlighted the current assets portion with a blue rectangular box in M1's balance sheet.
There are many components that makes up the current assets. Usually, they are listed in either ascending or descending order of liquidity. I will be going through each component in the current assets of M1's balance sheet as an example. To add on, the numbers beside each component refers to the specified section in the notes to the financial statements in which more information about the component will be given.
Cash and Cash Equivalents - This is rather self-explanatory. Cash refers simply to cash while cash equivalents can refer to other instruments such as bank deposits or deposits in a money market fund. A money market fund is considered to be of low-risk as it invests in high-quality short-term instruments and debts securities. If you refer to section 19 of the notes to the financial statements, it offers a breakdown of M1's cash and cash equivalents.
Prepayments - Prepayments are payments made by other companies for good and services which they have not received yet by the end of an accounting period. An analogy would be your subscription to newspapers. Let's say you bought one year worth of subscription of Straits Times from SPH. As such, you will have to pay them that one year worth of subscription before they deliver the newspapers to you.
Trade Debtors - This is more commonly known as Receivables. You will see it on other balance sheets more commonly as Accounts Receivables or Trade Receivables. It refers to companies which have purchase goods or services from M1 but has not paid up yet. If you refer to section 16 of the notes to financial statements, M1 has classified this section according to different time periods in which the trade debtors have yet to pay up. Furthermore, the provision for debts due to receivables which are unrecoverable is being listed in this section and the amount which it has written off due to such unrecoverable debts from receivables.
Inventories - Inventories are goods which can be in the form of raw materials, goods which are in the making or the finished goods itself. In M1's case, the inventories are in the form of handsets and accessories since M1 is a telco company. This can be seen in section 15 of the notes to the financial statements.
In general, these are the main items of the current assets in a balance sheet. There can be other components depending on the nature of the industry which the company is in. In my next post, I will be discussing on the main items of the non-current assets in a balance sheet using M1 as an example.
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