Liquid assets
Encyclopedia of Business Terms and Methods, ISBN 978-1-929500-10-9. Copyright © 2012 by Marty J.Schmidt. Revised 4 March 2012.
The Meaning of Liquid Assets
Liquid assets are either cash or other current assets that can (in principle) be turned into cash readily.
Among current assets, in addition to cash, accounts receivable and inventories are considered somewhat liquid. The balance sheet entries for these assets enter the calculation of liquidity metrics such as working capital and the current ratio.
A shortage of liquid assets (as indicated by low scores on liquidity metrics) is a signal that a company may not be able to pay short term creditor obligations on time, and may have trouble meeting payroll or investing in activities necessary for survival and growth such as marketing or research and development.
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