Assets marketable securities

Liquid assets are those that can be realized almost immediately, such as cash, accounts receivable, and marketable securities. Although inventories are current assets, they must not be regarded as hquid assets because they cannot usually be converted into cash without winding up the business. 

Assets are classified as current, fixed, or intangibles. Current assets include cash, cash equivalents, marketable securities, accounts receivable, inventories, and prepaid expenses. Cash and cash equivalents are those items that can be easily converted to cash. Marketable securities are securities that a company holds that also may be converted to cash. Accounts receivable are the amounts due a company from customers from material that has been delivered but has not been collected as yet. Customers are given 30, 60, or 90 days in which to pay however, some customers fail to pay bills on time or may not be able to pay at all. An allowance is made for doubtful accounts. The amount is deducted from the accounts receivables. Inventories include the cost of raw materials, goods in process, and product on hand. Prepaid expenses include insurance premiums paid, charges for leased equipment, and charges for advertising that are paid prior to the receipt of the benefit from these items. The sum of all the above items is the total current assets. The term current refers to the fact that these assets are easily converted within a year, or more hkely in a shorter time, say, 90 days. 

Assets The list of money on hand, marketable securities, monies due, investments, plants, properties, intellectual property, inventory, etc., at cost or market value, whichever is smaller. The assets are what a company (or person) owns. 

Liquidity ratios are a measure of a company s ability to pay its shortterm debts. Current ratio is obtained by dividing the current assets by the current liabilities. Depending on the economic climate, this ratio is 1.5 to 2.0 for the chemical process industries, but some companies operate closer to 1.0. The quick ratio is another measure of liquidity and is cash plus marketable securities divided by the current liabilities and is slightly greater than 1.0. 

The accounting definition of woridng capital is total current assets minus total current liabilities. This information can be found from the balance sheet. Current assets consist chiefly of cash, marketable securities, accounts receivable, and inventories current liabilities include accounts payable, short-term debts, and the part of the long-term debt currently due. The accounting definition is in terms of the entire company. 

Assets are commonly divided into the classifications of current, fixed, and miscellaneous. Current assets, in principle, represent capital which can readily be converted into cash. Examples would be accounts receivable, inventories, cash, and marketable securities. These are liquid assets. On the other hand, fixed assets, such as land, buildings, and equipment, cannot be converted into immediate cash. Deferred charges, other investments, notes and accounts due after 1 year, and similar items are ordinarily listed as miscellaneous assets under separate headings. 

The ratio of total current assets to total current liabilities is called the current ratio. The ratio of immediately available cash (i.e., cash plus U.S. Government and other marketable securities) to total current liabilities is known as the cash ratio. The current and cash ratios are valuable for determining the ability to meet the financial obligations, and these ratios are examined... 

Only the most liquid of assets are included in this ratio, and the best ratio is usually 1 1, but this varies with the industry concerned. Table 9.12 calculates the acid-test ratio. Although the Blue company has a better current ratio than the Gold company, it does not have a better acid-test ratio, and, therefore, may have to sell its inventory at discounted prices in order to raise cash for current debt that is due. The Gold company, which did not have a favorable current ratio, does have an acceptable acid-test ratio because most of its current assets are in cash, accounts receivable, and marketable securities. 

Total Current Assets. The sum of cash, marketable securities, inventories, accounts receivable, and prepaid expenses is called total current assets. 

The cash or quick ratio expresses the ability of a company to cover from its assets an emergency. It is the cash plus marketable securities divided by the current liabilities. Atypical figure is greater than 1.0. 

Marketable Securities Accounts Receivable Inventories Prepaid Expenses Total Current Assets... 

As noted, the coupon rate is the interest rate the issuer agrees to pay each year. The coupon rate is used to determine the annual coupon payment which can be delivered to the bondholder once per year or in two or more equal installments. As noted, for bonds issued in European bond markets and the Eurobond markets, coupon payments are made annually. Conversely, in the United Kingdom, United States, and Japan, the usual practice is for the issuer to pay the coupon in two semiannual installments. An important exception is structured products (e.g., asset-backed securities) which often deliver cash flows more frequently (e.g., quarterly, monthly). 

Some bonds include a provision in their offer particulars that gives either the bondholder and/or the issuer an option to enforce early redemption of the bond. The most common type of option embedded in a bond is a call feature. A call provision grants the issuer the right to redeem all or part of the debt before the specified maturity date. An issuing company may wish to include such a feature as it allows it to replace an old bond issue with a lower coupon rate issue if interest rates in the market have declined. As a call feature allows the issuer to change the maturity date of a bond it is considered harmful to the bondholder s interests therefore the market price of the bond at any time will reflect this. A call option is included in all asset-backed securities based on mortgages, for obvious reasons. 

Although it is commonly quoted by market participants, the cash flow yield suffers from limitations similar to the yield to maturity. These shortcomings include (1) the projected cash flows assume that the prepayment speed will be realized (2) the projected cash flows are assumed to be reinvested at the cash flow yield and (3) the mortgage-backed or asset-backed security is assumed to be held until the final payoff of all the loans in the pool based on some prepayment assumption. If the cash flows are reinvested at rate lower than the cash flow yield (i.e., reinvestment risk) or if actual prepayments differ from those projected, then the cash flow yield will not be realized. Mortgage-backed and asset-backed securities are particularly sensitive to reinvestment risk since payments are usually monthly and include principal repayments as well as interest. 

The first issue in the Irish Asset Covered Securities market is due in March 2003 and will be brought by a well-known German name, the... 

Euro Zing I is a cash flow CDO that presents several features of novelty and interest. It is the first true arbitrage CDO of European asset-backed securities in that, 100% of the assets were sourced from the marketplace rather than an existing balance sheet. It is also the first CDO to use a unique, innovative dnal-currency liability structure in sterling and euro to access the sterling ABS market in a cost-efficient way as opposed to cnrrency swapping each asset individnally to a common cnrrency. 

This discussion covers the main factors affecting bond returns in the European fixed income market, namely, the random fluctuations of interest rates and bond yield spreads, the risk of an obligor defaulting on its debt, or issuer-specific risk, and currency risk. There are also other, more subtle sources of risk. Some bonds such as mortgage-backed and asset-backed securities are exposed to prepayment risk, but such instruments still represent a small fraction of the total outstanding European debt. Bonds with embedded options are exposed to volatility risk. However, it is not apparent that this risk is significant outside derivatives markets. 

Among the most popular structured products currently being offered in the market are asset-backed securities (ABSs) and collateralised debt obligations (CDOs). 

As shown in Table 16.3, assets for this corporation are divided into Current Assets, Investments, Property, and Other Assets. Current assets are items of economic value that could be converted to cash in less than one year, including cash and cash equivalents, marketable securities, accounts receivable, inventories, prepaid expenses, and deferred income taxes. The current assets total 4,630,000,000. Investments pertain to investments in companies in which ownership interest by U.S. Chemicals is 50% or less, but where U.S. Chemicals exercises significant influence over operating and financial policies. Property constitutes fixed assets, including land, buildings, machineiyr, equipment, and software, and is listed at its bod... 

The acid-test ratio, also called the quick ratio, is a modification of the current ratio with the aim of obtaining a better measure of the liquidity of a company. In place of current assets, only assets readily convertible to cash, called quick assets, are used. Thus, it is defined as the ratio of current assets minus inventory to current liabilities. Marketable securities, accounts receivable, and deferred income tax assets are considered to be part of quick assets. From Table 16.3, the quick assets for U.S. Chemicals, in millions of dollars, is 4,630 - 1,420 -312 = 2,898. This gives an acid-test ratio of 2,898/4,153 = 0.70, which is not a desirable ratio, since it is less than one. At the end of the year 2000, Monsanto Company had a much better acid-test ratio of 1.35. 

Current ratio is a liquidity measure computed by dividing the current assets by current liabilities it measures short-term solvency or the ability of a firm to meet current liabilities. Because current assets include inventory that may or may not be convertible into immediate cash, the quick ratio is frequently used in addition to the current ratio. The quick ratio is calculated by dividing cash plus marketable securities and discounted receivables by current liabilities. Satisfactory values for these two ratios are 1.2-2.0 for current ratio and 1.0-1.2 for quick ratio. 

The market in structured finance securities was hit hard in the wake of the 2007—2009 financial crisis. Investors shunned asset-backed securities in a mass flight to quality. As the global economy recovered from recession, interest in the securitization resumed. We examine the fallout in the market later in this chapter. First, we discuss the principle concepts in undertaking securitization. 

Investor interest in the ABS market has been considerable from the market s inception. This is because investors perceive asset-backed securities as possessing a number of benefits. Investors can ... 

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