Liquid assets are important for companies finance because it can provide quick access to cash.
Liquid assets encompass resources in a company that can be readily converted into cash. Cash itself is the most liquid asset, as it is already in a form that can be immediately utilized for payments. Liquid assets also include things that can easily be sold or converted in to cash. For example bank deposits, listed stocks and bonds.
Importance of liquid assets
The presence of liquid assets contributes to a company’s liquidity, reflecting its ability to meet financial obligations. Good access to liquid assets indicates strong liquidity. A strong liquidity is important for stakeholders, shareholders, costumers and employees.
See also: The ultimate guide to liquidity and cash flow
Enhancing liquidity
To improve a company’s liquidity, various measures can be implemented:
- Liquidity budget: Establishing a liquidity budget assists in monitoring available funds and ensuring efficient cash management.
- Distinguishing liquid assets: Not all assets are considered liquid; assets like machinery, despite their substantial value, may not be easily sellable. Recognizing and prioritizing truly liquid assets is vital.
- Increasing profitability: Enhance the company’s profitability by exploring opportunities for revenue growth and cost reduction. This can contribute to generating surplus funds for liquid assets.
- Invoice selling: If faced with delayed customer payments, consider selling invoices to expedite cash flow and get liquid assets.
- Cost reduction: Identify and eliminate unnecessary costs within the company to free up resources that can be redirected towards liquid assets.
- Negotiating with banks: Engage with financial institutions to secure a larger overdraft facility, providing a safety net for times when additional liquidity is required.