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.
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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 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.
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 or quick assets? ›
Quick assets = (cash + cash equivalents + short-term investments + accounts receivable ) / (current liabilities)
How do I calculate my liquid assets? ›
To calculate your liquid net worth, add up your liquid assets (cash, money in the bank, stocks, bonds, and the like) and subtract your liabilities (credit card debt, student loans, car loan, etc.). When adding up your assets, do not include real estate or retirement accounts.
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.
How many types of liquid assets are there? ›
Examples of liquid assets may include cash, cash equivalents, money market accounts, marketable securities, short-term bonds, or accounts receivable.
What are the most common liquid assets? ›
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.
Is a home a liquid asset? ›
Is a house a liquid asset? Homes and other real estate are nonliquid assets. It takes months to complete the sale of a home or other property and realize the cash that might come with that.
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.
The term “net liquid assets” simply refers to the total sum of a business's cash and other liquid assets, minus its current liabilities. By subtracting these current liabilities, you'll arrive at the business's net worth liquid assets total. There are several types of assets that qualify as liquid: Cash.
What is the formula for minimum liquid assets? ›
The application calculates the Minimum Liquid Asset Ratio by dividing the Total Stock of Qualifying Liabilities by Total Stock of Liquid Assets.
What is the formula for current assets? ›
How to Calculate Current Assets. Current Assets = Cash + Cash Equivalents + Inventory + Accounts Receivables + Marketable Securities + Prepaid Expenses + Other Liquid Assets.
What is an example of a liquid asset? ›
Liquid assets are any assets—including investments and physical property—that can be quickly converted into cash while still holding their market value. For example, if you have money invested in the stock market, those stocks are a liquid asset, because you can exchange them for cash in a short amount of time.
What is the formula for asset liquidity? ›
Current Ratio = Current Assets / Current Liabilities
The current ratio is the simplest liquidity ratio to calculate and interpret. Anyone can easily find the current assets and current liabilities line items on a company's balance sheet.
How do I get liquid assets? ›
Cash on hand is considered to be a liquid asset because it can be readily accessed. Cash is a legal tender that a company can use to settle its current liabilities. The money in your checking account, savings account, or money market account is considered liquid because it can be withdrawn easily to settle liabilities.
How do you calculate liquid asset ratio? ›
Types of liquidity ratios
- Current Ratio = Current Assets / Current Liabilities.
- Quick Ratio = (Cash + Accounts Receivable) / Current Liabilities.
- Cash Ratio = (Cash + Marketable Securities) / Current Liabilities.
- Net Working Capital = Current Assets – Current Liabilities.
