Thursday, December 1, 2016

What is a Liquid Asset?

A liquid asset is cash or any asset that is easily convertible into cash. Some examples include money market funds, shares, US Treasury Bills, Bank deposits and marketable securities.  In a corporation's financial statements, liquid assets are cash, marketable securities and accounts receivables.

It is important to make the distinction between liquid assets and illiquid assets as an investor and as management of a business.  An investor in an illiquid investment such as a real estate or technology limited partnership interest do not have liquid assets.  These are assets that if they become liquid at all will be within a year or more.  The point is to understand that some assets can be used to pay debt or purchase things and some assets have to be converted to cash in order to have purchasing power or be able to pay debt.  It may be prudent for investors to require liquid assets which would serve as a cushion for an illiquid deal if it does not work out favorably.

In short a liquid value is an asset that can be converted to cash in a short period of time with little to no loss on the value of the asset. Generally if there is an open market for the asset it can be considered a liquid asset.  In some countries or businesses silver, gold and other precious metals are considered liquid assets since there are quoted prices and buy demand to purchase these precious metals at a certain price.  The ability to sell the precious metals quickly at the market rate with little loss of value makes the gold or silver a liquid asset.

Hope this was helpful,

-Nick Coriano

About the Author: Nicholas Coriano is a Business Consultant.  He is a graduate of The University of Connecticut Business School and the John Marshall Law School in Chicago.  He has worked at Merrill Lynch, The New York Stock Exchange and is currently a partner at Cervitude Intelligent Relations, which specializes in Investor Relations for companies valued under $1 Billion USD.

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