Liquid Asset

Financial Dictionary -> Investing -> Liquid Asset

In terms of business, on its own liquid or how liquid a business is refer to how much available cash flows through its system. Assets on its own refer to possessions and belongings owned by somebody or a business that have a monetary worth. Therefore together liquid assets simply refer to those assets that can be quickly sold and turned into available cash for the business and is a factor in determining how "liquid" and financially stable a business is. More specifically financial experts consider liquid assets to be assets that can be changed in to capital within twenty days; however that doesn't mean that the item is not an asset and can't make money, just not quickly and efficiently.

Other factors that determine an asset to be classed as liquid include its ability to be sold at a reasonable market value without it causing any major fluctuations in the market or the value of other items. If something has to be sold at well below its worth it is not very liquid. There has to be adequate demand.

At the basis of it money itself is a liquid asset in that its digital, coin or note form can instantaneously be exchanged for items of equal value, to pay off debts and to use to purchase services. Money itself is considered a liquid asset because it is still only a representation of value, is still controlled by the government at hand and can be traded for other currencies.

In a typical business its stock and inventory are liquid assets. So are some pieces of equipment and machinery (for example computers). Shares can also be considered liquid assets.

When a company is on the verge of going under and needs to sell off its assets in order to pay off debt, it is known to be in "liquidation."