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Current Assets
The first section of the Balance Sheet lists all items that a company can quickly convert into cash. This is important to be able to pay for unforeseen events such as lawsuits and demand loans. Inventory is included in this category because it is generally assumed inventory can be turned into cash relatively quickly.
Cash and Cash Equivalents
This is the amount of money available to the business immediately. Just like it would be nice to write a cheque rather than having to use the credit card to repair a leaky roof at home. The more money a business has sitting on hand, the more confident an investor should feel about management. Managers with a wad of cash can pay a handsome dividend, buy back shares, or spend on product research that can secure future growth.
With cash and cash equivalents totaling $677,144,000, RIM has a full third of their current asset position covered with instant, fully liquid resources. Looking further down the Balance Sheet to short-term debt (which is non-existent), it is doubtful any of the cash sitting on deposit is borrowed money. This is an extremely positive situation. Bombardier, with $2,648,000,000 in the bank might sound impressive, but that only accounts for 7% of their current asset total. Look further. Are some of those cash equivalents actually federal government grant monies, subsidies and guarantees? Left to management means alone, they might be in the precarious position of being cash strapped.
Inventory
Do not brush over this one. Give inventories your close attention. Although accounting procedures allow inventory to be included in current assets, accounting assumptions should not be considered transferable across the board or widely applicable to all industry sectors.
RIM inventory is listed as $255,907,000 in the total of $1,919,265,000 current assets. That relates to 13%, which is a very solid figure on its own, but considering the business the company is in, quick turns of inventory are common, so production is going straight out the door into receivables and cash. RIM is in an envious position which speaks well of management, products, and planning
Bombardier inventory is listed as $3,961,000,000 out of a total of $18,577,000,000 current assets. That relates to 38%, which is not a decent percentage for a company such as Tim Horton, operating in a business with quick turnover or great for a retailer such as Canadian Tire.
Consider what this means in Bombardier’s industry. The company assembles machines that take a very long time from order taking to order filling so a part of that figure is either sitting on the production floor or held waiting to be used for production that hasn’t even come on line. Of greater concern is the amount of inventory Bombardier is obligated to carry to fill requests for replacement parts on equipment already out in the market. Some of this inventory might be used for non-revenue warranty work and some might not be consumed for years. That is the way it is in this business and part of the reason an investor should like to see a stronger cash position than Bombardier’s. Their cash figure is a full third lower than inventory.