The simple way to look at assets is that they are what we’ve got. Everyone wants to assure an entity is solvent. Try to obtain several years to look at. There are a number of things to consider, and obviously we can’t cove them all. You need to glean the unique situations and then evaluate what’s going on. Some basic things to look for are things like are the current assets more than current liabilities? What’s the relationship of accounts receivable to sales, is cash constantly created.
Is there a trend for cash, accounts receivable and inventory? If they are moving in the same directions as the business that is a positive.
Make sure you understand the longer-term assets. Certain property and equipment is needed to run a business and that is depreciated, a provision to charge its usage as an expense over its expected life. Nearing full depreciation assets may require replacement in the future and will cost more than they did the last time. Other than non-cash items required to comply with accounting standards, longer term assets are generally locked up and not available to help with insolvency or contain restrictions on this usage. So stick to the current assets and an understanding of the fixed and longer term assets.
Certain entities, like not-for-profits have little concern for fixed assets once solvency has been evaluated. At that point, the amount of available cash is an important consideration.