#Liquidity101

✍️Why are some assets called liquid assets?

Assets can be described as liquid to explain that they are mobile 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 shape 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 salaries to employees. A company may not always have a lot of cash on hand, but it is better to ensure that the company has enough liquid assets that can be quickly converted into cash if needed when there is an immediate cash demand.

What is the difference between liquid assets and illiquid assets?

Liquid assets are an item with future economic benefits to a company that can be easily exchanged for 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 finalize the transaction. On the other hand, a stock of publicly traded companies can often be bought or sold online very quickly.