What will your outlook towards maintenance of liquid assets to ensure that the firm has adequate cash in hand to meet its obligations at all times? Definition: An Asset is said to be liquid if it is easy to sell or convert Into cash without any loss in Its value. Bank notes and Checking accounts are the most liquid assets. Description: A Liquid Asset allows any individual or a company to access cash at any time they want. At the time of investing, the Investor must keep some of the liquid assets In his portfolio so that he can have an easy hand on his money during an emergency.
Cash Is highly a liquid asset followed by the banking accounts, checkable account, short – term promissory notes, treasury bills and other government bonds. Objectives: To ensure that the company always has enough cash to meet Its legal obligations and avoid Liquidity. I. E. , to maintain adequate short term financial flexibility. To obtain the required funds from eternal sources at the right time In the right form and the best possible terms. To ensure that the companies assets and liabilities, current and long term, financial and operating operations are utilized properly.
To forecast and Lana for the financial requirement of future operations. To make all decisions and recommendations on the basis of one primary criterion, maximizing the long term value of the organization. Liquid Asset: Liquid asset is an asset that can be converted in to cash quickly and with minimal impact to the price received. Liquid assets are generally regarded in the same light as cash because their prices are relatively stable when they are sold in the open market.
Liquid assets are cash on hand or any tangible or intangible item that can be converted quickly and easily into cash, typically within 20 days, without losing much f their value. These assets are among the most basic types of financial resources used by consumers, business and investors. Cash and checking accounts are the two most obvious forms of liquid assets. Currency: Legal tender for purchases and to settle outstanding debts, currency remains the most common type of liquid asset used consistently by retail consumers.
Money that is deposited into a current account is considered to be a liquid asset because it Is possible to immediately access the funds in order to settle debts. The debit card offers consumers even greater access to Immediate liquid assets. Investments: Some Interest – bearing Investments can be liquidated quickly, qualifying them as liquid assets. Money market fund shares, bonds, mutual funds and the cash value of a life Insurance policy are examples of Investments that can provide quick cash when necessary. Certificates of deposit and stocks might also qualify under this definition.
When the actual market liquidity of each asset may vary, the key Is that there are always people looking to buy these Items, so they can be sold relatively easy. In the case of some Jointly owned assets, only a percentage of an asset could be considered liquid. Other Assets: function of liquid assets. The final settlement awarded by a court for damages in a low suit could also be considered to be a liquid asset, depending on the terms of payment specified by the court. Less liquid and illiquid assets: Mortgages are sometimes considered a liquid asset, but they are much less liquid than many other types.
Real estate is also more likely to sold at less than its value if it must be liquidated quickly. If the market is unstable, it may be difficult to determine the true value of real estate as well. Business Assets: For Business, Liquid assets can include cash, marketable securities and receivables. Cash equivalents which can be quickly converted to cash as needed, are also considered to be liquid enough to meet expenses, but not have so much cash on hand that short-term investment opportunities are not pursued.
Companies often divide their assets into net liquid, quick and current assets. Net liquid assets are what would be left if all of the business debts were paid off. Quick assets are those that can be converted into cash immediately, while current assets are those that can be converted within a year. Liquid assets include items such as accounts receivable, demand and time deposits, gilt edged securities. In some countries, precious metals (usually gold and silver) are also liquid assets.
The higher short term assets and the less short term debt, the better your ability to pay the debt. The ratio analysis will be the guide stick for the liquidity ratio. Projected cash flow statement is the guided stick. Our Sales, realizations and fixed and variable expenses need to be kept in mind while judging the balanced need of liquid assets. The Short-term obligations are met by realizing amounts from current, floating or circulating assets. The current assets should either be liquid or near liquidity.
These should be convertible into cash for paying obligations or short term nature. The sufficiency or insufficiency of current assets should be assessed by comparing them with short term liabilities. If current assets can pay off current liabilities, then liquidity position will be satisfactory. The standard current ratio 1 :1. 33 means any firm / company is having adequate funds to meet its obligation in time.