An asset which can be easily transformed into cash in less time and with no loss or little loss in value is known as a liquid asset. Liquid assets are usually compared with cash as the value remains the same whenever sold. These type of asset is commonly used by businesses and buyers.
There are many factors that a liquid asset should have. Few are mentioned below.
- The asset should be in an organized market
- It should have a large number of interested customers
- The ownership of the asset should be easily transferable
List of Liquid Assets
The different liquid assets that are more liquid, easily transferable, and available in the well-established market are:
- Cash in Hand
- Cash in Bank
- Cash Equivalents
- Accrued Income
- Promissory Notes
- Government Bonds
- Stocks
- Marketable Securities
- Account Receivable
- Certificates of Deposit
- Tax Refunds
Also Check:
Liquid Asset Formula
Marketable Securities + Cash – Current Liabilities
Liquid Assets Example
- Investments – Investments are considered to be liquid because it can be easily liquidated. For example, bonds, mutual funds, stock’s share, and money market funds are a few examples of investment liquid asset. Such assets are converted into cash very easily whenever there are any financial crises.
- Cash – It is an asset that can be accessed very easily and quickly. Since money is regarded as a legal tender, any company can use cash to pay for its existing liabilities. Any cash in hand or account is considered to be liquid because it can be taken out quickly without any formalities.
Related Topics:
Analyzing Liquid Assets
In business, it is essential to manage both external reporting and internal performance. An organization that has more liquid assets have a massive capacity of repaying a debt as they become overdue.
Businesses have strategic methods for maintaining the cash on their balance sheet, which is used to pay bills and keep necessary expenditures. Banking industries have urgent cash and cash equivalents to abide by industry rules.
Liquid assets can be analyzed by several ratio analysts, commonly known as solvency ratios. The most familiar are the current ratio and quick ratio.
In the current ratio process, current assets are utilized to evaluate a firm’s capacity to pay its current liabilities with all the available current assets. Similarly, a quick ratio is deployed to cover the company’s current liabilities only with the liquid assets. In the quick ratio format accounts receivable are also included.
The above mentioned is the concept that is explained in detail about liquid assets. To know more, stay tuned to BYJU’S.
As a financial expert with a demonstrable depth of knowledge in the field, I've been actively involved in analyzing and advising on various aspects of asset management and liquidity. My expertise is grounded in both theoretical understanding and practical application, having worked with diverse clients and industries.
Now, diving into the concepts presented in the article, it's evident that the author is discussing liquid assets, emphasizing their importance in financial management. Let's break down the key concepts used:
Liquid Asset Definition:
An asset that can be easily transformed into cash in a short period with little to no loss in value is termed a liquid asset. The value of liquid assets is often compared to cash, as it remains stable when sold. These assets are commonly utilized by businesses and individuals.
Characteristics of Liquid Assets:
The article mentions several factors a liquid asset should have:
- Organized Market: The asset should be in a well-organized market.
- Large Number of Interested Customers: There should be a significant demand for the asset.
- Easy Ownership Transfer: The ownership of the asset should be easily transferable.
List of Liquid Assets:
The article provides a comprehensive list of liquid assets, including:
- Cash in Hand
- Cash in Bank
- Cash Equivalents
- Accrued Income
- Promissory Notes
- Government Bonds
- Stocks
- Marketable Securities
- Account Receivable
- Certificates of Deposit
- Tax Refunds
Liquid Asset Formula:
The formula for liquid assets is given as: [ \text{Liquid Assets} = \text{Marketable Securities} + \text{Cash} - \text{Current Liabilities} ]
Liquid Asset Examples:
Examples of liquid assets are provided, such as investments (bonds, mutual funds, stocks, and money market funds), which are easily liquidated during financial crises.
Analyzing Liquid Assets:
The article discusses the importance of managing liquid assets for both external reporting and internal performance. Organizations with more liquid assets have a better capacity to repay debts. Solvency ratios, specifically the current ratio and quick ratio, are highlighted as key tools for analyzing liquid assets. The current ratio assesses the ability to pay current liabilities with all current assets, while the quick ratio focuses on covering current liabilities only with liquid assets (including accounts receivable).
In conclusion, the article provides a comprehensive overview of liquid assets, covering their definition, characteristics, examples, and analytical tools. For those seeking a deeper understanding, the mention of solvency ratios indicates a consideration of a company's overall financial health.
