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LSDefine
Simple English definitions for legal terms
liquid asset
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A quick definition of liquid asset:
Liquid asset: A liquid asset is something that can be easily turned into cash, like money in a bank account or stocks that can be sold quickly. This is different from things like houses or cars, which take longer to sell and might not be worth as much when they are sold. Companies need to have enough liquid assets to pay their bills and other short-term expenses. They can figure out how much they have by comparing their liquid assets to their current debts.
A more thorough explanation:
Definition: Liquid assets are assets that can be easily and quickly converted into cash. These include cash on hand, cash in bank deposits, stocks, bonds, and certificates of deposit.
Examples:
- Cash on hand
- Cash in bank deposits
- Stocks
- Bonds
- Certificates of deposit
Explanation:
These examples illustrate how liquid assets are assets that can be easily converted into cash. For example, if you have stocks, you can sell them quickly and get cash in return. Similarly, if you have a certificate of deposit, you can withdraw the money without any penalty. These assets are different from non-liquid assets like property or jewelry, which can take longer to sell and may lose value in the sale.
Companies also need to keep a certain amount of liquid assets to meet short-term obligations. They can measure their liquidity by comparing the amount of liquid assets with the amount of current liabilities.