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
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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.
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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.
FAQs
A liquid asset is an asset that can easily be converted into cash in a short amount of time. Liquid assets include things like cash, money market instruments, and marketable securities. Both individuals and businesses can be concerned with tracking liquid assets as a portion of their net worth.
What is a liquid asset and list an example? ›
Anything of financial value to a business or individual is considered an asset. Liquid assets, however, are the assets that can be easily, securely, and quickly exchanged for legal tender. Your inventory, accounts receivable, and stocks are examples of liquid assets — things you can quickly convert to hard cash.
What is the formula for liquid assets and examples? ›
(Marketable Securities + Cash) – Current liabilities = Liquid Assets. Cash includes the money in hand and in the bank. Cash equivalent includes the values of all marketable securities in hand. Liabilities include all current liabilities.
How liquid are your assets? ›
Liquidity is a metric of how easily something can be converted to cash. The faster an asset can be converted to pure cash without impacting its actual value (or with the least possible impact on its value), the more liquid it is. For example, the most liquid asset you can have is cash.
How many liquid assets are there? ›
Investments Considered as Liquid Assets
Cash. Money market funds. Marketable equity securities (Stocks) Marketable debt securities (Bonds)
What is a liquid asset? ›
Liquid assets refer to cash on hand, cash on bank deposit, and assets that can be quickly and easily converted to cash. The common liquid assets are stock, bonds, certificates of deposit, or shares.
What is the most liquid asset in the world? ›
Cash is the most liquid asset, followed by cash equivalents, which are things like money market accounts, certificates of deposit (CDs), or time deposits.
What are the liquidity formulas? ›
Quick Ratio or Acid Test Ratio
Hence, inventories are excluded when the acid test ratio is concerned. Formula: Quick Ratio = (Marketable Securities + Available Cash and/or Equivalent of Cash + Accounts Receivable) / Current Liabilities. Quick Ratio = (Current Assets – Inventory) / Current Liabilities.
What is the formula for liquid or quick assets? ›
Quick assets = (cash + cash equivalents + short-term investments + accounts receivable ) / (current liabilities)
Is my home a liquid asset? ›
Land and real estate investments are considered to be non-liquid assets because it can take months or more for an individual or a company to receive cash from the sale.
Cash, bank accounts and other assets. Liquid asset means something that can be quickly and easily turned into cash. For example, a savings account is a liquid asset because you can easily get money from it. A house is not a liquid asset because you have to sell it in order to get money from it.
How much should I have in liquid assets? ›
How much do you need? Everybody has a different opinion. Most financial experts suggest you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000.
How much money does Bill Gates have in liquid assets? ›
According to Forbes, as of 2021, Bill Gates has a net worth of $130.5 billion. Out of this amount, it is estimated that only about 3% to 4% is in liquid assets, meaning cash or assets that can easily be converted to cash.
Is a car a liquid asset? ›
Non liquid assets are assets that cannot be sold or converted into cash easily without a significant loss of investment. Some examples of such assets include houses, cars, land, televisions and jewelry.
Is a 401k considered liquid asset? ›
401(k) accounts do not qualify as liquid assets until you reach retirement age. If you are not yet 59 ½, the IRS will require you to pay income tax on the 401(k) withdrawal, and an additional 10% early withdrawal penalty. The 10% penalty makes a 401(k) non-liquid.
What are high quality liquid assets? ›
The high-quality liquid assets (HQLA) include only those with a high potential to be converted easily and quickly into cash (in times of distress). HQLA are cash or assets that can be converted into cash quickly through sales (or by being pledged as collateral) with no significant loss of value.
Is a house an example of a liquid asset? ›
Land and real estate investments are considered to be non-liquid assets because it can take months or more for an individual or a company to receive cash from the sale.
Is a CD a liquid asset? ›
Liquid assets are easy to turn into cash with little loss in value, which makes them great for paying for unexpected costs. Cash in checking, savings, money market, and certificate of deposit accounts, as well as the cash value of some life insurance plans, are all examples.
