![]() Management, therefore, takes a keen interest in monitoring Working Capital and the firm's Current Ratio. Product development or an infrastructure upgrade, for instance. Owners and managers everywhere watch closely the current availability and performance (turnover) of liquid assets in each current asset category:Ĭash flow is critical for meeting obligations and needs: PayingĮmployees, paying interest on loans or bonds, or investing in new Cash and cash-equivalents are ready to use immediately for any purpose-investing, employee wages, or utility bills, for instance. Measuring Liquid Asset PerformanceĬash is by definition the most liquid of the organization's current assets. Liquidity Metrics measure the firm's ability to meet near term spending obligations, by comparing the balances in various current assets categories to the firms Current Liabilities-payments due tin the near term. The Balance Sheet values for these assets serve as input data for calculating liquidity metrics such as Working capital and the Current Ratio. ![]() These include Cash assets, of course, but also Inventories, Accounts Receivable, other Short-Term Receivables, and Short-Term Investments. Accountants normally consider several asset categories as having enough liquidity to qualify as Current assets. "Current" usually means cash flow is possible within a year or less. Liquid Assets Are Also Current Assets?Īssets that can transform into flowing cash in the near term reside on the Balance Sheet under the heading Current Assets. Funds that can flow quickly and easily are liquid. The liquid or water metaphor appears often in finance and accounting, referring to the flow of funds. Liquid assets are either cash or other current assets that can (in principle) be turned into cash readily. What Are Liquid Assets? Inventories and accounts receivable are "Current Assets" because they are considered relatively liquid. The Role of Liquid Assets in Financial HealthĬopyright © 2023 Solution Matrix Ltd All Rights Reserved ![]()
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