If you're a company wanting to create something spectacular, then you need "things" (assets) to support that product creation: buildings, machinery, land, equipment, materials, supplies and everything else that goes into supporting your business. In other words, you need capital.
But how do you get this capital? Simple businesses don't need a lot of capital funding. A good ‘ole fashioned car wash in your parking lot just needs some soap, a source of water and some rags. But in terms of a fast track to the Billionaire List, that won't get you very far.
On the level of business development that gets reported by the Wall Street Journal, you'll require larger scale methods of raising funds. These include things like equity or bond issuance (selling stock in the company or borrowing money from investors).
Here's an example:
Let's say you're hanging out with your buddies one night and after downing a few stiff drinks and complaining about the drudgery of completing TPS reports. After downing a few, you begin making plans to stick it to the man, and better yet, start your own profitable business. You think, heck everyone else is using the Internet to make money, why can't I? And after a few more rounds of gin and juice you convince your friends that the business degree you earned 20 years ago makes you an expert in this kinda stuff, and so you all take the Nestea plunge.
But you realize you have no funding to buy things like equipment, supplies, land, office space, or even staplers (you know, no capital) to get your new flair company up and running. So, after writing a stellar business plan, you go down to the local bank to get a loan, but are promptly denied because your business is too "risky" (what do they know about e-commerce anyway?). You and your partners promptly agree that you need to find some way to have someone fund your venture.
You remember that your brother's wife's sister's co-worker knows some rich millennials with deep pockets (venture capitalists or angel investors). And they agree to throw some money your way. (Apparently they like flair too). Thankfully, with your newfound equity AND after successfully issuing some capital bonds AND rolling out an IPO, you've finally raised enough capital to buy you and your buddies new Maseratis to support your business travel needs in Europe. Wait. Wasn't this supposed to be an e-commerce business?
Related or Semi-related Video
Finance: What is a Current Asset?16 Views
Finance, a la shmoop. What is a current asset? Current yeah it's kind of a [Picture of a currant on a plant]
socialist raisin there, you know they all look about alike but that's a [Soldiers marching in front of Stalin with currants for heads]
currant and has nothing to do with current as cur-rent remember it like
your rent comes due soon, you rent a place for a year or less usually or at [Guy sticks his head out of pile of overdue bills]
least that's how long, you know lock in your rental rate. So if your [Someone signing a contract]
asset is current then it can be turned into cash within a year. That's how we
remember it here around Shmoop. Examples? A bond coming due in a year or less. [Bond document]
Companies store their cash all the time in short term paper like certificates of
deposit or Bank CDs which come due in less than a year. that's a current asset. [List of short-term paper]
And companies buy these kinds of bonds so they get a little more interest than
from their banks you know checking account. They buy stocks as well, shares [New interest rate is very small]
of goog can be easily converted into cash quickly. Shares in Google are a [Current asset stamp]
current asset. Ounces of gold, yep easily a current asset. All right you get the
idea, so what's not current well fourteen thousand acres of solar panel land that [Huge fields full of solar panels]
your company owns. If you ever had to sell it while there are very few buyers
and it likely would take more than a year just to figure out all the [Calendars popping up]
regulatory restrictions on selling it. A big old factory well can't sell that on [Red cross appears on a factory]
Amazon or Ebay, definitely not current. Your brand equity
in your corporation like the relationship you've developed with your
consumers, yeah it's another non-current asset you can't exactly go to the bank [Guy going up to the bank and pleading]
and convert brand loyalty to USD. So that's it current assets they live here [Arrow pointing to current assets on a balance sheet]
on this side of the balance sheet way up top in the good view seats high on the [Current assets in a tree]
vine of the tree. So put down those currants, stop ranting about the [Stalin holding a currant]
proletariat and for God's sake just buy some raisins. [Guy pointing to a box of raisins]
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