What is a Liquid Asset?
A liquid asset is cash or securities that can be converted to cash quickly.
How Does a Liquid Asset Work?
Let's assume Company XYZ has $1 million of cash on its balance sheet and $300,000 of marketable securities. We could say Company XYZ has $1.3 million of liquid assets.
Why Does a Liquid Asset Matter?
Clearly, having the cash in hand to pay off debts is an advantage to borrowers and soothing to lenders. Thus, analysts compare liquid assets to current liabilities as a very stringent test of how well a company can meet its debt obligations.
