Liquid assets are things that an entity or an individual owns and can be converted into cash easily and quickly without losing market value. For example, cash at hand, account receivables, money in the saving accounts, stocks, treasury bills and treasury bonds (Forbes, 2021). On the other hand, illiquid assets are assets that takes time before they are converted into case and may lose value in the process of converting them. for example, real estates, equipment’s, automobiles and so forth.
It is good to hold some liquid assets so that emergency needs of an entity can be met on time. These assets also protect organizations from unseen occurrences (Forbes, 2021). For example, a health care facility that had no liquid assets faced a lot of problem in the wake of Covid19. This is because it could not afford to buy testing kits, protective gears, pay for oxygen and so forth. The liquid assets can also enable businesses to exploit an opportunity that emerges abruptly or pay the suppliers or creditors on time.
The number one importance of having illiquid assets is to cushion the entity against loss of value of assets that may arise due to factors like inflation (CFI, 2021). Assets like land does not decrease its worth. But, the problem comes in converting it into cash. The owner may be forced to take a lower value than its current market value.
It is good to hold some liquid assets so that emergency needs of an entity can be met on time. These assets also protect organizations from unseen occurrences (Forbes, 2021). For example, a health care facility that had no liquid assets faced a lot of problem in the wake of Covid19. This is because it could not afford to buy testing kits, protective gears, pay for oxygen and so forth. The liquid assets can also enable businesses to exploit an opportunity that emerges abruptly or pay the suppliers or creditors on time.
The number one importance of having illiquid assets is to cushion the entity against loss of value of assets that may arise due to factors like inflation (CFI, 2021). Assets like land does not decrease its worth. But, the problem comes in converting it into cash. The owner may be forced to take a lower value than its current market value.
