4/2/2023 0 Comments Liquid assets![]() Liquidity ratios allow you to see how much short-term debt you can manage should a financial emergency occur.Ĭurrent ratio = current assets ÷ current liabilities. These ratios measure your current liabilities weighted (illiquid assets) in relation to your liquid assets. Liquidity ratios are a critical way to measure and monitor your ability to pay off current debt obligations without seeking outside financial assistance. During a liquidity crunch, loans are harder to obtain and businesses tend to get charged high-interest rates-raising the risk of business failure. Knowing this lets you gauge how much cash you could quickly access should a financial emergency occur. It’s critical that you know the total value of your liquid asset portfolio. Examples of non-liquid assets include real estate holdings that can take time to sell or retirement accounts, such as an IRA, which may incur penalties for an early withdrawal. Liquid assets are essentially the opposite of non-liquid assets, which cannot be converted to cash as quickly. Certain investments (marketable securities, stocks, bonds, mutual funds, money market funds) – Because there is a large stock market of ready-to-buy investors at any point in time, these types of investments can often be sold on short notice without losing significant value and are thus considered liquid investments.savings or checking account) can be accessed practically anywhere and at any time. Checking or savings accounts – Funds sent to a bank account (e.g. ![]()
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