liquid assets

Brex Log | What are liquid assets and non-liquid assets?

liquid assets

A business or person can own many valuable assets. But as the expression goes, cash is still king. A company may generate billions of dollars in revenue, but if it can't generate liquid cash, it will struggle. An individual might own multiple properties or prized artwork, but in a financial emergency, they’ll depend on liquid assets to stay afloat.

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

Liquidity, or your business’s ability to quickly convert assets into cash, is vital on multiple fronts. These resources help you weather financial challenges, secure credit, and settle liabilities with short notice. It's important for businesses to have a combination of liquid and non-liquid assets.

What are liquid assets?

A liquid asset is a type of asset that can be rapidly converted into cash while keeping its market value. There are other factors that make assets more or less liquid, including:

  • How established the market is
  • How easily ownership is transferred
  • How long it takes for the assets to be sold (liquidated)

Cash on hand is the most liquid type of asset, followed by funds you can withdraw from your bank accounts. No conversion is necessary—if your business needs a cash infusion, you can access your funds right away. 

There are many sources of accessible, flexible capital. So, what are liquid assets that entrepreneurs leverage in addition to cash? And what are the limitations?

Non-cash liquid assets 

Investments are next on the liquidity ladder. Some investment accounts are called cash equivalents because they can be liquidated in a fairly short time span (generally 90 days or fewer). As a general rule, long-term holdings are less liquid than short-term holdings.

Stocks are a classic example of liquid assets. The stock market is established with a steady number of buyers and sellers.

How easy a cash conversion is will vary by security type, but you can typically sell your shares and use the funds within a few days.

Stocks are considered slightly less liquid than cash for another reason: If the market is down, you could be forced to sell below value. 

Other great examples of liquid investments include U.S. Treasury bills (T-bills), bonds, mutual funds, and money market funds, which are a type of mutual fund. The Brex Cash account stores deposits in a very liquid, low-risk government money market fund. This ensures funds are available exactly when you need them. 

In terms of liquidity, some assets aren’t as attractive. They might have penalties for withdrawing funds early, or set balance requirements. For instance, you agree to a term length when you open a certificate of deposit (CD), a type of federally insured savings account. If you remove funds early, you’re penalized.

Many people are familiar with the steep early withdrawal penalties for retirement accounts 401(k)s and individual retirement accounts (IRAs). As of 2019, you can cash out both accounts after age 59 and a half without tax penalties—any earlier, and you face a 10% withdrawal penalty. 

Recording assets with a balance sheet

You may be wondering how you—or your accountant—should be tracking all of your assets. The answer is one of three age-old financial statements prepared by businesses: a balance sheet. 

Companies use balance sheets to record assets, liabilities, and shareholders’ equity, and to understand financial position at a specific point in time. Assets are listed in this report according to how liquid they are. You’ll know a quick glance at a balance sheet whether you can pay off debt obligations when they come due. 

Using a cash management account Brex Cash, you can quickly create a custom balance sheet with the data already recorded in your account.

Examples of liquid assets

At this point, you understand the factors that make an asset liquid, as well as how to keep track of your holdings. Now, we’ll dig deeper: What are liquid assets in the business world? 

Consider adding these assets to your portfolio, if they apply.

  • Cash or currency: The cash you physically have on hand.
  • Bank accounts: The money in your checking account or savings account.
  • Accounts receivable: The money owed to your business by your customers.
  • Mutual funds: A fund that pools money from many different investors into a diverse portfolio.
  • Money market accounts: A type of low-risk, interest-bearing savings account.
  • Stocks: The shares you own.
  • Treasury bills, notes, and bonds: A safe and reliable investment option with a variety of maturity dates, or the date when the investor will receive their principal back.
  • Certificates of deposit: A savings account with a fixed withdrawal date.
  • Prepaid expenses: The insurance, rent, and other bills you’ve paid ahead of schedule.
  • Retirement investment accounts: 401(k)s, IRAs, and other accounts.

A healthy financial profile begins with a mix of liquid assets and non-liquid assets, which we’ll cover next. 

What are non-liquid assets?

Non-liquid assets, also called illiquid assets, can’t be quickly converted to cash. Most non-liquid assets must be sold to tap into their value, requiring you to transfer ownership. It can take months or years to find the right buyer for non-liquid assets, and selling them quickly tends to have a negative effect on value.

The most common examples of non-liquid assets are equipment, real estate, vehicles, art, and collectibles. Ownership in non-publicly traded businesses could also be considered non-liquid. With these kinds of assets, the time to cash conversion is difficult to predict. In addition, they require greater effort to liquidate. 

Take real estate investments, for instance. Un the other investments we’ve mentioned, real estate investments are considered non-liquid. 

Accepting the earliest offer on a property can result in a serious loss and lead to further financial strain. Contract negotiations could take several months, and may require multiple back-and-forths to reach a sum that matches the property’s real value. But if debt is growing and bills are racking up, business owners simply can’t afford to wait—a clear sign that this is an illiquid asset. 

Examples of non-liquid assets

Non-liquid assets are familiar to business owners and consumers a. To get a business up and running, you’ll rent, lease, or purchase non-liquid assets by necessity. Some examples of non-liquid assets include:

  • Land and real estate investments
  • Equipment
  • Art
  • Vehicles
  • Jewelry
  • Collectibles

Inventory is often considered a non-liquid asset. If you think it will be sold at a profit in one year or less, it’s liquid.

How personal guarantees could put your assets at risk

In order to open a business card or corporate card, many financial institutions require individuals to agree to something called a personal guarantee. 

A personal guarantee is a commitment to transfer ownership of one’s personal assets (such as a house or car) to cover a debt (such as an unpaid credit card balance). In other words, personal guarantees grant banks the right to seize an individual’s assets to pay off business debts.

Fortunately, you don’t have to put your personal assets in jeopardy to build credit and win financing for your business. Brex’s corporate card is tailored to the needs of startups and requires no personal guarantee. We base approval on the factors that matter, cash on hand and monthly sales.

Why asset liquidity matters

You should be able to recognize liquid assets with confidence, and have some idea as to which assets could be a worthwhile investment. Asset liquidity matters a great deal in business. It’s a major indicator of how prepared you are for economic changes and emergencies, and whether you’re putting your cash to good use. 

Liquid assets have one job: to be there when you need cash, especially for emergencies. Most financial advisors recommend having an emergency fund that covers expenses for six months. This fund will cover bills, repairs, medical insurance costs, theft, employee turnover, and other expenses.

Business challenges and emergencies don’t just occur on a personal or industry-specific scale. Some shifts turn the markets upside down.

The 2008 financial crisis, the worst U.S. economic disaster since the Great Depression, sent the global stock market spiraling. A sweeping crisis isn’t as ly as losing a client or dealing with an unexpected bill, but hard cash is almost always a safe bet.

If you have a higher number of liquid assets, you’re also more ly to get better loan terms and interest rates—a must-have for startups. Non-liquid assets offer long-term gains that shouldn't be discounted either.

What are liquid assets? The bottom line

Business owners are constantly trying to strike a balance between having financial security and avoiding too much idle cash.

If you're trying to determine how to start building up liquid assets, you can't go wrong with creating an emergency fund for your business.

From there, you can work with a financial advisor to determine whether you have the ideal combination of liquid and non-liquid assets backing your business ventures.


Liquid Assets (Meaning) | Complete List of Liquid Assets

liquid assets

Liquid Assets are the assets of the business which can be converted into cash within a short span of time and includes the assets such as cash, marketable securities, and money market instruments and they are shown on the asset side of the balance sheet of the company.

In simple terms, these assets can be transformed into cash rapidly, with a negligible effect on the price available in the entire market. Such assets comprise of government bonds and money market instruments.

The foreign currency market is believed to be globally the highest liquid market across the world since a vast amount of money is being exchanged every day and thus, making it extremely difficult for a person to affect the worldwide exchange rate.

List of Liquid Assets

Savings account and cash are believed to be the greatest usual form of highest liquidity being owned by either individuals or businesses or both. However, several other assets are believed to be more liquid, easily capable of being shifted among the owners, and such assets that are well-established all through the market. Here is the complete list of liquid assets –

Example # 1

  • The stock market is believed to be the perfect example of any liquid market as there exist vast numbers of sellers and buyers, coupled with several other stocks being examples of liquid assets.
  • Considering such an asset’s significant trading volume, some equitable securities might fast be transformed into cash. Such types of cases mainly exist for stocks having significant share volume and huge market capitalization.
  • Since securities can be quickly sold through electronic markets at complete market prices while in demand, equitable stocks under correct circumstances are liquid;

Example # 2

  • Cash on hand is taken as a liquid asset since its capability of being quickly accessed.
  • Since cash being considered as a legal tender, any firm may utilize it to resolve its existing liabilities. Assume some company or any person has some cash in a savings or checking account.
  • The account’s money is believed to be liquid since it can be taken out quite simply for settling liabilities.

Example # 3

  • Investments are expected to be liquid as they can simply be liquidated.
  • For instance, mutual funds, money market funds, bonds, and any stock’s shares are believed to be liquid. Such assets can readily be converted into cash whenever any financial emergency arises.
  • Usually, investments can simply be sold, depending upon the investment.

 Current Assets vs. Liquid Assets

  • The list of Liquid assets comprises of Cash in Hand, Cash at the bank, marketable securities, other cash equivalents, accounts receivables, accrued income, loans, and advances (short-term) and Trade Investments (Short Term).
  • Current Assets include the above list and, also, have inventories and prepaid expenses.

Consolidated Liquid Assets

Consolidated liquid assets are securities and cash that can readily be converted into cash, less current liabilities. Its formula is  = Marketable Securities + Cash – Current Liabilities

  • For example, let’s consider that Ford Motors, Inc. has $2 million in cash as depicted on its balance sheet, $600,000 of marketable securities as well as $4 million in current liabilities. Employing the above-mentioned formula, Ford Motors, Inc. it would be: $2,000,000 + $600,000 – $4,000,000 = -$1,400,000
  • In the above example, Ford Motors, Inc. has negative liquidity, which signifies that if the company is asked to pay-off all its current liabilities now, Ford Motors wouldn’t be able to perform such a task.

Holding sufficient cash on hand for paying off all the debts is a significant benefit to borrowers while comforting for lenders. Therefore, analysts employ this as an extremely stringent parameter of determining the company’s capability to successfully meet its near-term debt commitments.

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Why are Liquid Assets essential for the business?

While evaluating investments, and considering one’s complete financial condition, liquidity might be a key factor. Essentially, liquidity considered to be any firm’s capability to easily convert any given asset into cash. Further, it is even the capability to purchase or trade any security leaving the asset’s price unaffected.


Overall, the liquid assets are of utmost importance to any individual or a company as it becomes convenient while making emergency debt repayments, purchasing equipment, hiring labor, payment of taxes, and several others.

Therefore, any company or an individual willing to start a business or invest strategically needs immediate cash, which is only possible if the entity has readily available cash or such securities that would fetch cash upon easy liquidation.

This article has been a guide to what are Liquid Assets and its meaning. Here we provide a complete list of liquid assets and how it is different from current assets. You may have a look at these articles below to learn more about Accounting –

  • Liquidity vs. Solvency
  • What are Real Assets?
  • Basic Accounting


What Assets Are Considered Liquid Assets?

liquid assets

Liquid assets are things that can be quickly converted into cash without losing value. These come in many different forms, such as cash, stocks and other marketable securities, money market funds and more. Liquid assets are different from their illiquid or fixed counterparts. These are investments that take much longer to convert to cash, typically due to a lack of buyers.

Do you need help building and maintaining an investing and financial plan for the future? Speak with a local financial advisor today.

What Kinds of Assets Are Liquid?

Think about what assets you have within easy access that, if needed, could pay for something within a relatively short amount of time. Some examples of these liquid assets are cash, checking accounts, savings accounts and some investment funds.

Knowing the total value of your liquid assets can be especially helpful if you’re struggling to pay for something in a sudden pinch. That makes them especially valuable additions to your emergency fund.

Cash and Cash Equivalents

Cash is your most liquid asset because you don’t need to take further steps to convert it – it’s already cash. You can use it to pay for a good or service immediately and also use it to settle any outstanding debts.

Cash is usually held in checking accounts, savings accounts or money market accounts. You can withdraw money from them quickly in order to pay for debts or other liabilities.

Other funds, a trust fund, tax refund, court settlement and some certificates of deposit (CDs) are included within the designation of cash- accounts. Even though they are not cash, they can be relatively easy to convert into cash so that you can go through with a transaction as quickly as possible.

In the case of a CD, note that it depends on the rules of the account; in many cases, there is a punishment for withdrawing your money before the term has elapsed.

Taxable Investment Accounts

If you have a variety of different investment accounts, you can liquidate them and convert them into cash a little less quickly than some of the accounts mentioned above, but still within a reasonable amount of time. Investment accounts can turn into cash within a couple weeks or months, and are therefore firmly liquid assets. Investment accounts can contain a variety of securities, including:

  • Stocks
  • Bonds
  • Money market funds
  • Mutual funds and other types of stock market investments

While investment accounts are liquid, you shouldn’t rely on them in the same way that you rely on your cash accounts. That’s because investments in securities involve a risk of loss, meaning you could lose some of your money if the market goes down. You can liquidate your investments, but you may not get as much cash as you put in.

Generally speaking, only taxable investment accounts are considered truly liquid. That’s in contrast to tax-advantaged retirement accounts, which vary in liquidity but generally limit your ability to liquidate your assets.

IRA plans cannot be considered liquid if you haven’t reached qualifying retirement age, because you’d still be obliged to pay the IRS early withdrawal penalties.

But you can claim a hardship withdrawal if your situation warrants a waiver of the 10% penalty for an early withdrawal.

How to Build Your Liquid Assets

Building your liquid assets essentially means that you’re giving yourself a financial insurance plan. In the case of an emergency, you’ll have money on hand to cover yourself and/or your loved ones through any major or unexpected incidents.

Take a look at your assets and rank them in order of liquidity. If you don’t have any cash to cover an emergency, start with that: an emergency fund. Add to this as much as you possibly can.

A comfortable amount would cover your basic needs and expenses for three to six months if you lost your job. And that amount, of course, is not the same for everyone.

It varies factors such as your specific monthly expenses, family and living situation.

An emergency fund may be the easiest way to start building liquid assets, but there are other ways, too.

You can try a hands-off robo-advisor or use a variety of tools,  mobile banking apps to investment apps – that don’t require more than a couple dollars to use.

You can also use a budgeting calculator to do some short-term planning and an investment calculator to get a sense of how your assets could grow over time.

Liquid Assets vs. Fixed Assets

Fixed assets, which are sometimes called illiquid assets, are investments or other assets that cannot be liquidated quickly.

For instance, your house, while ly worth a substantial amount of money, would be difficult to sell on short notice.

As a result, when someone is looking to sell a fixed asset within a short period of time, they may be forced to accept less due to the lack of a large market.

Here’s a few examples of fixed assets:

  • Your home and other real estate properties
  • Antiques
  • Jewelry
  • Furniture
  • Your car

One thing you’ll notice is that most of the assets above have somewhat consistent prices and stable markets. However, the ability to sell your gold necklace, your car or another fixed asset is often hindered because finding a buyer can be tough.

On the flip side, liquid assets are sellable nearly at a moment’s notice. For example, if you have money tied up in stocks and bonds, you can simply sell those investments and gain access to your cash within a fairly short time frame.

Bottom Line

Making sure you have plenty in cash and other liquid assets is crucial – not just to cover everyday expenses, but also to allow you to handle an emergency or big life change. Understanding which of your assets are more liquid than others will save you time – as well as potential obstacles – in the long run.

For instance, when you apply for a mortgage, lenders can look at the amount of liquid assets you have. They do this to ensure that should anything happen, you’d still be able to continue making monthly mortgage payments. Lenders may also evaluate you in the same way when you apply for a car loan.

Tips for Managing Your Finances

  • Talk to a financial advisor about different investment opportunities that match your style and preference. Don’t have an advisor yet? Finding the right one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three possible financial advisors in your area in five minutes. Get started now.
  • Once you’ve got a strong emergency fund, work on investing for your future and retirement. Set up an employer-sponsored 401(k) and take advantage of your job’s company match if there is one. You should also be actively contributing to an IRA, as well as investing in some riskier securities if you’re younger.

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Understanding Liquidity: Why You Need Liquid Assets

liquid assets

Editorial Note: Forbes may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.

Liquid assets include cash and other assets that can quickly be turned into cash without losing value. You always want some of your assets to be liquid in order to cover living expenses and potential emergencies.

But in a larger sense, think of liquidity as a spectrum: Some assets are more readily convertible into cash than others.

At the far end of the spectrum are illiquid assets, which are very hard to value and sell for cash.

What Is Liquidity?

Liquidity describes your ability to exchange an asset for cash. The easier it is to convert an asset into cash, the more liquid it is. And cash is generally considered the most liquid asset. Cash in a bank account or credit union account can be accessed quickly and easily, via a bank transfer or an ATM withdrawal.

Liquidity is important because owning liquid assets allows you to pay for basic living expenses and handle emergencies when they arise. But it’s important to recognize that liquidity and holding liquid assets comes at a cost.

In general, the more liquid an asset is, the less its value will increase over time. Completely liquid assets, cash, may even fall victim to inflation, the gradual decrease in purchasing power over time.

To protect against inflation and save for long-term financial goals, you’ll probably want to sacrifice some liquidity and lock assets into investments that grow your wealth over time, investment securities or real estate.

But assets real estate, as well as art and jewelry, may be considered highly or even exclusively illiquid. This doesn’t mean that you will never receive cash for them, only that it can be more challenging to value assets this and then turn them into cash.

What Are Liquid Assets?

Liquid assets are assets that can easily be exchanged for cash. While assets are valuable possessions that can be converted into cash, not all of your assets can be sold for cash right now, or without taking a loss on the sale. Common liquid assets include:

  • Cash. Cash is the ultimate liquid asset. Besides holding physical currency and ATM withdrawals, cash can be accessed via your checking account and peer-to-peer payment apps.
  • Treasury bills and treasury bonds. T-bills and T-bonds are highly stable—and highly liquid—investments, backed by the full faith and credit of the United States government. As a consequence, they can instantly be sold for cash on the secondary market if you need their value before they mature.
  • Certificates of deposit. CDs can earn you higher APYs than checking or savings accounts, but they also come with tougher withdrawal restrictions. To access the money held in a CD before its maturity date, you may have to pay a penalty, typically a few months of interest. No-penalty CDs are an exception here, and they earn lower APYs.
  • Bonds. Some investors buy bonds and hold them to their maturity date. But the secondary market for trading bonds is vast, meaning that many types of bonds are relatively liquid investments. any security, you may end up selling bonds for less than you paid for them.
  • Stocks. Equities may be sold on stock exchanges almost instantly, and publicly traded stocks are considered very liquid. You usually receive cash from the sale within a few days. As noted above, you may end up selling a security stock for less than you paid for it.
  • Exchange traded funds (ETFs). ETFs are investment funds that trade stocks on public exchanges, making them fairly easy to sell quickly. While they are less risky than individual stocks and bonds, you still may end up having to sell ETFs at a loss if you need your money quickly. You will generally receive cash within a few days.
  • Mutual funds. While they provide easy diversification, mutual funds only trade once a day, at the market close. This makes them slightly less liquid than stocks and ETFs. You generally receive proceeds from a sale the next business day.
  • Money market funds. Money market funds are a type of mutual fund that only owns highly liquid assets, cash, CDs and government-backed debt. Because their components are highly liquid, their value is highly stable. mutual funds, you generally receive proceeds from a sale the next business day.
  • Precious metals. Precious metals can be both liquid and illiquid. In some states, certain gold and silver coins can be used as currency, meaning it’s hypothetically as liquid as cash. Physical precious metal can also be exchanged for cash via dealers. But depending on where you store your precious metals, they may be less accessible.

Liquidity and Your Financial Accounts

Beyond individual asset classes, you should also understand the liquidity offered by the different accounts where you hold your assets. Certain account types are more liquid than others:

  • Checking accounts. Checking accounts are the closest to cash, in terms of liquidity. You can pay for things directly with a debit card, write a check or withdraw cash.
  • Savings accounts. Everyone should maintain both a checking account and a savings account, but it’s important to understand that savings accounts are designed to be slightly less liquid. To encourage less frequent transactions, federal rules prevent more than six convenient withdrawals a month. You can get around this limitation by conducting transactions in person, by mail or by ATM.
  • Money market accounts. Another form of savings deposit, a money market account may offer higher interest than a savings account, and it may offer features such as use of a debit card or check-writing privileges.

[In response to the coronavirus pandemic, to give savers readier access to their funds, the Federal Reserve has suspended the monthly six withdrawal limit on savings deposits; however, banks may still charge excess withdrawal fees.]

  • Cash management accounts. Cash management accounts generally offer the liquidity benefits of checking accounts with higher interest rates at or above the levels of savings accounts. Because they aren’t savings deposits, they aren’t governed by the same withdrawal limitations. You should understand that some cash management accounts have low daily or monthly withdrawal limits, making them less liquid.
  • Taxable investment accounts. Taxable accounts are available via brokerages, and are designed hold stocks, bonds, ETFs and mutual funds. They are fairly liquid and, when you sell assets held in a brokerage account, cash proceeds are transferred to your account within days of a sale. There’s a big potential downside, however: Depending on market conditions, you may have to sell your investment assets at a loss, and you may incur trading commissions or sales fees.
  • Tax-advantaged accounts. Tax-advantaged accounts, your 401(k), individual retirement account (IRA) or health savings account (HSA), are less liquid than taxable investment accounts. They may hold similar investment assets, but their preferential tax treatment comes with major limitations, such as penalties for their use before retirement age or when they are used for nonqualified purposes.

[As part of the CARES Act, you can withdraw up to $100,000 from your tax-advantaged retirement accounts penalty free if you face coronavirus-related hardship. If you refund your account with the amount you withdraw within three years, you can avoid income tax liability on the withdrawal.]

  • Trusts. Trust accounts can be fairly liquid, depending on how they’re set up and how they’re managed. However, some trust structures are designed to make it harder to access and control the assets, so consult a trust attorney before setting up this type of account.

What Are Illiquid Assets?

Illiquid assets are not easily sold or converted into cash. Some examples of illiquid assets include:

  • Real estate. It can take weeks or months—or even years—to sell real estate. While it’s possible to access the equity you have built up in a home or an investment property through a home equity loan, home equity line of credit or a reverse mortgage, setting up these arrangements take time and effort.
  • Collectibles. Antiques, artwork, baseball cards, jewelry and other collectibles can be difficult to value and hard to sell.
  • Stock options. Many companies—not just tech start-ups—offer their employees stock options as part of a larger compensation package. Typically a new employee is promised a set amount of stock in the company that employs them if they remain with the company for a given period of time. Stock options can be very valuable, but they are highly illiquid assets, as you must remain with the company for years before you own the stock promised to you.
  • Private equity. If you can invest in private equity assets, venture capital or funds of funds, you have the potential to achieve big gains. However, private equity funds often come with steep restrictions on when you can sell your shares.
  • Estates. Before you can access the assets in an estate, debts must be paid and taxes assessed. It can take years to fully benefit from an estate.
  • Intangible assets. Intangible assets are concepts or ideas that have value—in some cases a very great deal of value. Intangible assets include things such as corporate goodwill, brand recognition, intellectual property and reputation. It can be very difficult to assign a market value to intangible assets, and they are by nature extremely illiquid.

How to Build Your Liquid Assets

Holding some of your total net worth in the form of liquid assets it is a key part of sound long-term financial planning. Above and beyond your checking account, you should hold some liquid assets so you can rapidly get cash when you need it most.

For instance, many financial advisors recommend that you have at least three to six months of expenses in liquid assets in an emergency fund, should you lose your job or experience financial hardship.

If you don’t have enough (or any) money set aside in an emergency fund, take a survey of your assets. If you have a high amount of illiquid assets tying up your money, consider liquidating some of them to finance your emergency fund. If you don’t have illiquid assets you can or want to liquidate, aim to set aside at least a portion of your paycheck to grow your emergency fund.

One of the best places to keep an emergency fund can be a high-yield savings account. Once you have a solid emergency fund in place, you can begin to use less liquid assets to achieve your longer-term financial goals.

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Liquid Asset — Definition, Examples, Balance Sheet Reporting

liquid assets

A liquid asset is cash on hand or an asset other than cash that can be quickly converted into cash at a reasonable price. In other words, a liquid asset can be quickly sold on the market without a significant loss of its value.

Generally, liquid assets are traded on well-established markets with a large number of buyers and sellers. The high number of market participants, along with large trading volumes, ensure the fast disposal of the assets without significantly losing value.

Examples of Liquid Assets

  • Cash
  • Cash equivalents (checking account, savings account, money market account)
  • Marketable securitiesMarketable SecuritiesMarketable securities are unrestricted short-term financial instruments that are issued either for equity securities or for debt securities of a publicly listed company. The issuing company creates these instruments for the express purpose of raising funds to further finance business activities and expansion. (stocks, government bonds)

Balance Sheet Treatment

Similar to other assets, liquid assets are reported on the balance sheetBalance SheetThe balance sheet is one of the three fundamental financial statements. These statements are key to both financial modeling and accounting.

The balance sheet displays the company’s total assets, and how these assets are financed, through either debt or equity. Assets = Liabilities + Equity of a company.

Assets are listed on the balance sheet relative to their liquidity level, with the most liquid types listed at the top of the balance sheet and the least liquid listed at the bottom.

Although there is no direct measure of the liquidity of each asset, businesses and market analysts use various financial ratios such as the quick ratioQuick RatioThe Quick Ratio, also known as the Acid-test, measures the ability of a business to pay its short-term liabilities with assets readily convertible into cash and cash ratioCash RatioThe cash ratio, sometimes referred to as the cash asset ratio, is a liquidity metric that indicates a company’s capacity to pay off short-term debt obligations with its cash and cash equivalents. Compared to other liquidity ratios such as the current ratio and quick ratio, the cash ratio is a stricter, more conservative measure to identify the overall level of liquidity of a company.

Importance of Liquid Assets

Liquidity is one of the key factors that determine success in the world of business. Liquid assets ensure a company’s ability to meet its immediate financial obligations and operating expenses.

In addition, the assets serve as the company’s protection from unforeseen adverse events such as a recession or a sudden decline in demand for the company’s products or services.

Finally, their presence directly improves the company’s ability to seek additional financing.

Liquid assets are important in personal finance as well. Generally, it is not recommended to exclude such assets from a personal investment portfolio.

Similar to business applications, liquid assets in personal finance are utilized to meet financial obligations as soon as possible.

In addition, they are also used in hedging a personal investment position against unanticipated adverse events.

Additional Resources

Thank you for reading CFI’s guide to liquid assets. CFI offers the Financial Modeling & Valuation Analyst (FMVA)™FMVA® CertificationJoin 350,600+ students who work for companies Amazon, J.P. Morgan, and Ferrari certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful:

  • Capital StructureCapital StructureCapital structure refers to the amount of debt and/or equity employed by a firm to fund its operations and finance its assets. A firm's capital structure
  • Current AssetsCurrent AssetsCurrent assets are all assets that can be reasonably converted to cash within one year. They are commonly used to measure the liquidity of a company.
  • Idle CashIdle CashIdle cash is, as the phrase implies, cash that is idle or is not being used in a way that can increase the value of a business. It means that the cash is not earning interest from sitting in savings or a checking account, and is not generating a profit in the form of asset purchases or investments. The cash is simply sitting in a form where it does not appreciate.
  • Liquidity EventLiquidity EventA liquidity event is a process by which an investor liquidates their investment position in a private company and exchanges it for cash. The main purpose of a liquidity event is the transfer of an illiquid asset (an investment in a private company) into the most liquid asset – cash.


Liquid Assets

liquid assets

The consolidated liquid assets are cash and such securities that can be readily subjected to cash conversion without the current liabilities. The formula is mentioned below.

(Marketable Securities + Cash) – Current Liabilities = Liquid Assets

Liquid Assets Examples 

The examples of a liquid asset would comprise both cash and investments.

Legal tender by way of cash is easily accessible and highly disposable. It can be utilised immediately for paying any existing liabilities. Cash available, whether at a bank or in hand, is considered to be liquid as it may be immediately used without any associated formalities. 

Specific investments can also be considered as liquid as they can be liquidated readily. In case of any financial urgency, it may be converted to cash quickly. Investments comprise a large number of instruments such as mutual funds, bonds, money market instruments and stocks, among others.

List of Liquid Assets 

Among a host of liquid assets, few have been mentioned below.

Cash at a bank pertains to the sum of the amount that is deposited in a financial institution. It is considered to be a current asset in a highly liquid form. 

It usually refers to the total accessible cash of an organisation. In the context of a company, cash in hand helps in the inference of the number of days for which an organisation can carry on with paying its operating expenses with the available cash. 

The short-term investment securities are known as cash equivalents with maturity periods to be usually around 90 days or less. Examples of cash equivalent include Treasury bills, legal tender, cheques that are received but not deposited etc. 

A government may issue debt security to raise funds. The holder of a government bond earns a fixed amount of interest against the amount loaned to a governmental body.

A promissory note is a financial instrument that shows the written promise by an issuer to pay a definite sum of money to a payee on a determined future date. It creates a legal obligation on the issuer to pay such loan. 

Accrued income is such an amount of money that has already been earned but yet not received. Interest earned on investment that has not been received is an example of accrued income. 

It is an investment in company shares representing ownership corresponding to the volume of stocks owned. Through an increase in the value of stocks, investors can earn capital gains by selling such shares. 

Account receivables pertain to such proceeds or payment that the customers of a company will have to pay for purchasing services or goods on credit. 

Importance of Liquid Assets 

The importance of liquid assets for companies arise from the fact that liquidity happens to be a key component of financial health, which investment decisions are undertaken. It becomes crucial in the instances of emergency debt payment, and payment of taxes or wages etc. 

Liquidity Ratio 

The analysis of liquidity is done by a number of ratios. Liquidity ratio is significant as it indicates whether a business holds the capacity to pay off its short-term debts. The two significant liquidity ratios are –

This ratio measures the ability of a company to settle its short-term obligations within a particular financial year. 

Current Ratio = Current Assets / Current Liabilities 

It is the extent to which a company may settle its short-term financial liabilities without securing additional financing or selling off its inventory. It is also known as the acid-test ratio.

Quick Ratio = (Current Assets – Inventory) / Current Liabilities

Test Your Knowledge –

1. Which of the following do you think is the most liquid asset?

  1. Government securities 

  2. Cash

  3. Land 

  4. Stocks 

2. Which of these below-mentioned options can be considered as a liquid asset?

  1. Cash in hand 

  2. Stocks 

  3. Marketable securities 

  4. All of the above 

3.  Investments can never be considered to be liquid?

  1. True 

  2. False

  3. At times 

  4. Only when sanctioned by the government 

  1. (b) Cash

  2. (d) All of the above 

  3. (b) False 

If you want to learn this topic and several other related topics in-depth, feel free to refer to the study materials available on Vedantu's website. Do not forget to download the app on your device.


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