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Liquid Assets | (Definition, Example) | List of Liquid Assets

March 6, 2020


hello everyone hi welcome to the channel
of WallStreetmojo friends today we’re going learn a concept which is known as the
liquid assets I mean no liquid assets are the most important thing in any
company because liquidity is what every company credit for for any business to
be successful there nee then there needs to be to rule that needs to be always
followed the first rule is that never run out of cash
rule number two is there are three rules actually never run out of cash and rule
number three says don’t forget rule number two and rule number three so that
means there is a high level of importance that is given to cash or
liquidity right never run out of cash to be successful what we what we are
looking over here is an extract taken from the Colgate-palmolive company cash and cash Equivalents and receivables data here now we are going to understand what are the liquid assets what are the liquid assets so liquid assets are the
assets that can be transformed into cash rapidly with the negligible effect on
the price available in the entire market and if you see such assets are are like
you know government bonds or money market security common bonds or money
market MMS that is or the money market security what we say the foreign
currency market is believed to be globally the highest liquid market
across the world since a huge amount of money is being exchanged every day and
there’s you know making extremely difficult for the person to affect the
worldwide exchange rate I’m gonna display saw the list of liquid assets
see saving accounts saving account and cash they are believed to be the
greatest usual form of the highly liquidity being owned by either
individuals or or by the business man’s or both however I know there are several
other assets that are believed to be more liquid and easily capable of being
shifted among the owners and such assets that are well established all through the market the complete list of the liquid assets
over here I’ll show you cash in hand we have cash in bank then
we have cash equivalents we call it CE then we have something called as accrued
income we have promissory note promissory note is the next thing we
have yeah previously discussed government bonds stocks marketable
securities then we have CD that a certificate of deposits and any tax
refunds the TRS so this was the list of for liquid assets now I’ll give you an
example of liquid asset see stock market is believed to be the perfect example of
any liquid market as as there exists a huge number of sellers and buyers
coupled with several other stocks been example of liquid assets now considering
such assets significant trading volume you see some equitable occurrence
securities might fast be transformed into cash and such type of cases
particularly exists for stocks having significant share volume and huge
marketable market capitalization now since a securities or example is
basically shares here since securities are can quickly be converted or be sold
through the electronic markets nowadays we have D mate form dematerialization
form at complex market prices when in demand and equitable stocks under
correct circumstances are liquid the second that we are going to discuss in
our example is the cash on hand the cash on hand is taken as the liquid asset
since its capability of being quickly exists now since cash has been
considered as a legal tender any firm may utilize to resolve its existing
liabilities assume some company or a person has some cash in saving
or checking accounts right the accounts money is believed to be liquid since it
can be taken out simply for setting liabilities the third example that we
are going to discuss here is going to be a liquid assets so example number third
investment is the next example investments are expected to be liquid as
they can simply be liquidated for instance but we have the mutual funds
money market from funds MMF we have bonds into picture any stocks
shares are believed to be liquid and such assets can be readily readily be
converted into cash whenever any financial emergency situation arises
usually investments can simply be sold depending upon the investments no well
let’s understand the difference between the current assets versus the liquid
assets current assets versus the liquid assets current assets are like you know
inventories prepaid expenses right we have debtors cash in hand we have
cash at bank next is your CE that is your cash equivalents the marketable
securities so this are the example of the current assets they saw the example
of current assets then we have the examples of liquid assets you can just
simply copy over here right so the above figure basically shows the difference
between the current assets and the liquid assets the list of the liquid
assets comprises is what we here so basically this are all the list of
current assets and the liquid assets right we have something that is known as
the consolidated liquid assets now consolidated liquid assets are the
security and cash that can be readily be converted into cash less any current
liabilities and consolidated liquidity assets formula is something like this
the consolidated liquid assets is equal to your marketable
securities I’ll just delete this to row with the marketable securities you need
to add cash in that and add cash deduct any current liabilities like for example
let’s consider Ford Motors Inc it has $2 million in cash how much $ 2 million
everything is a million time I’m not writing dollar in debt in cash as
depicted you know in your balance sheet of them $600,000 is standing in the
marketable securities $600,000 and well as well as $4,000,000 is in
the current liabilities right so employing the above-mentioned formula
the Ford Motors Inc it would be something like this the marketable
securities okay that’s $600,000 plus you need to add cash minus the current
liability so that gives us $4,00,000 right it’s 2,00,000 + 6,00,000 – 4,00,000
right standing it final at 4,00,000 so in the above example Ford Motor Inc
closely you’re sorry I’m sorry I’m sorry this is a 4 million and this is 2,00,000
actually let me change the number over here 2,00,000 & 6,00,000 and this is $4,000,000 yeah so it goes negative so here there is a negative liquidity which signifies
you know if the company is asked to pay off all its current liabilities Ford
Motors won’t be able to perform perform such a task so on a concluding note over
all the liquid assets are the at most important to any individual or a company
as it becomes extremely handy while making emergency debt repayments
purchasing purchasing equipments hiring label payment of taxes and several
others so therefore any company or individual willing to start a business
or invest strategically needs but you can so-called call as the immediate cash
which is only possible if the entity has readily of
cash or such securities that would fetch cash upon easy liquidation thank you
everyone for joining the session just

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