Liquid Assets Definition
A liquid asset is an asset that can be quickly converted into cash. The most common liquid assets are cash, investments that can be sold quickly, and accounts receivable.
Most businesses have some level of liquid assets on hand to cover short-term needs such as inventory costs or unexpected expenses. For example, a business may keep a reserve of cash in case it needs to make a large purchase or pay an unexpected bill. Having liquid assets gives a business the flexibility to respond to opportunities and challenges as they arise.
The amount of liquid assets a business keeps on hand depends on its size and operating model. A small business may only keep enough cash on hand to cover its day-to-day expenses, while a larger company may maintain a much larger reserve. Publicly traded companies are required to disclose their liquidity position in their financial statements.
