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What Are Liquid Assets?

Cash and bank accounts are common forms of liquid assets.
Debit cards offer consumers greater access to their liquid assets.
A family home or other real estate can be considered a liquid asset, although there are much more liquid options.
Article Details
  • Originally Written By: Malcolm Tatum
  • Revised By: L. Whitaker
  • Edited By: Bronwyn Harris
  • Last Modified Date: 20 July 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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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 of their value. These assets are among the most basic types of financial resources used by consumers, businesses, 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 savings or checking 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. While 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 easily. In the case of some jointly owned assets, only a percentage of an asset could be considered liquid.

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Other Assets

The final settlement awarded by a court for damages in a lawsuit could also be considered to be a liquid asset, depending on the terms of payment specified by the court. Tax refunds and the balances of trust funds are often included in the working definition of liquid assets.

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. Since a key part of liquidity is that the asset be sold at or very near its actual value, this means that real estate is often considered "illiquid" or not easy to sell.

Any item for which there is no established value is not considered to be a liquid asset, even if that item might be sold for a high price. When the market for the item is small or uncertain, a sale could significantly affect its value. Even stock, usually considered a liquid asset, could be illiquid if a large block is put up for sale, which could lower its market value.

Business Assets

For businesses, 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. A business needs 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 businesses 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.

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Discuss this Article

bookworm
Post 2

A liquid asset is particularly important to a business. A company must have enough cash on hand to meet its daily obligations.

pocurana
Post 1

A short term security (i.e., one that becomes mature within a year) is also considered a liquid asset.

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