The most liquid asset is cash

The most liquid asset is cash
The most liquid asset is cash

Video: The most liquid asset is cash

Video: The most liquid asset is cash
Video: Cash and Cash Equivalents | Your Most Liquid Assets 2024, November
Anonim

A liquid asset is an enterprise's resources that can be turned into cash fairly quickly at minimal cost.

liquid asset
liquid asset

The most highly liquid asset is recognized as various cash on hand, in bank accounts and short-term deposits. Another liquid asset is represented by current assets in the form of short-term financial investments (securities for which there is an opportunity to sell them at any time due to the high quotation on the exchange serve as examples). But short-term receivables cannot be called a highly liquid asset, but the ease of its sale is an order of magnitude higher than that of inventories and other current assets.

In fact, such a liquid asset as accounts receivable can be valued in terms of the speed of its collection or sale. An important point in the issue under consideration is the presence of a free market where such debt can be circulated. Less liquid asset - stockin the form of raw materials, materials and costs in work in progress.

the most liquid assets are
the most liquid assets are

The domestic balance sheet is formed in this way: first, non-current assets are displayed, and only then – current assets. Thus, the most liquid assets include short-term investments of financial resources and cash.

To evaluate certain assets, absolute, quick, and current liquidity ratios are used. The most common among them are the second and third coefficients, their normal values should be up to one and up to two, respectively.

To determine what belongs to liquid assets, it is necessary to consider those resources, with the implementation of which the enterprise has the opportunity to pay off its debt in a fairly short time. In other words, how easy it is to implement an enterprise is an indicator of its financial stability.

what is liquid assets
what is liquid assets

When analyzing the financial activity of a business entity, an assessment of its creditworthiness can be given. To do this, the calculation of the feasibility of the balance sheet is carried out, the results of which will show whether the enterprise has the opportunity to fully and timely pay off any of its obligations. In other words, liquidity characterizes the ability of an entity to pay off short-term obligations through the sale of its current assets.

It is necessary to understand the level of creditworthiness of an enterpriseto determine the ability to fully and on time pay all its obligations. The methodology for analyzing the ease of implementation of the balance sheet involves comparing the funds reflected in the asset and grouped according to their liquidity level, with the liabilities recorded in liabilities and grouped according to their maturity. When carrying out the analysis, the corresponding coefficients can be used, the calculation of which is given in any thematic educational literature. An analysis is carried out at the beginning and end of the period, and the results obtained are compared with their normal limitations. And in the end, the appropriate conclusions are drawn.

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