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