Meaning and definition of Liquid Asset
Liquid assets can be referred as an asset that can be converted into cash quickly and with minimal impact to the price received. Generally, liquid assets are considered similar to cash for their prices being relatively stable on being sold in the open market. As per Investopedia, to be a liquid asset, it is essential for the asset to have an established market with sufficient participants to absorb the selling without significantly i8nfluencing the price of the asset.
Besides, there is also a requirement for the asset to be relatively easier in transfer of ownership as well as the movement of the asset. Liquid assets form the most basic form of financial resources used by consumers, investors, and suppliers. In many cases, financial experts opt to classify liquid assets as any asset that can be transformed into cash within a twenty years’ period.
Examples of Liquid Assets
Some of the good examples of liquid asset include government bonds, stocks, and money market instruments, money deposited into a savings or checking account, and similar more. Besides, liquid asset also includes tax refunds, mortgages, court settlements, certificates of deposits, and trust fund monies.
Misconceptions about Liquid Assets
It is noteworthy that liquid assets do not count items like real estate, jewelry, stamp and card collections, or cars for these items take time in being sold out. Liquid assets are readily available to be converted into cash and sold on short notice. These items will, however, not lose value on being sold at a short notice. On the contrary, if baseball collection is sold online, it might lose value due to speediness of the transaction.
Benefits of Liquid Assets
One might awe about what percentage of assets should be liquid, specifically, cash that is readily accessible. Since every individual is distinctive and should consult a financial advisor for this info. However, one should have sufficient liquid assets for an emergency situation job loss, or unexpected medical expenses. Moreover, liquid assets can be converted into cash instantaneously, which is thus useful for debt relief or making purchases.
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Most WantedFinancial Terms
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- Debt-to-Equity Ratio
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- Receivable Turnover Ratio
- Return On Capital Employed (ROCE)
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- Debt Service Coverage Ratio
- Solvency Ratio
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