#Liquidity101 🔥🔥🔥🔥🔥🔥

Liquidity101

✍️Why are some assets called liquid assets?

Assets can be described as liquid to explain that they are fluid and flexible and can be easily converted. In contrast to more rigid assets that cannot be easily exchanged for cash, liquid assets can easily change form and are traded quickly.

✍️Why are liquid assets important?

Liquid assets are important because a company always needs cash to meet its short-term obligations. Without cash, a company cannot pay its bills to suppliers or pay salaries to employees. A company may not always have a lot of cash on hand, but it is best to ensure that the company has enough liquid assets that can be quickly converted to cash if needed when there is an immediate cash demand.

What is the difference between liquid and illiquid assets?

Liquid assets are items with future economic benefits to a company that can easily be converted into cash. Illiquid assets are harder to sell. Consider an office building in downtown New York compared to a share of Amazon. The office building may take months to find a buyer, engage in negotiations, draft legal documents, and close the deal. On the other hand, a share of publicly traded companies can often be bought or sold online very quickly.