- What are liquid assets?
- Types and examples of liquid assets
- Liquid vs. non-liquid assets: Understanding the difference
- Why liquid assets matter for your financial health
- How to calculate your liquidity position
- How much should you keep in liquid assets?
- How Ramp helps improve liquidity
Liquid assets are cash or near-cash resources a business can convert to cash quickly without losing significant value. Examples include bank balances, money market funds, and publicly traded securities that can be sold within days rather than months.
For businesses, liquid assets make it easier to cover unexpected expenses, manage short-term obligations, and act quickly on growth opportunities without selling long-term investments at a discount.
Key takeaways
- Liquid assets are cash or near-cash resources that can be converted to cash quickly with minimal loss in value
- Common liquid assets include cash, checking and savings accounts, money market funds, and publicly traded securities
- Liquidity depends on how fast an asset can be sold and how closely it retains its market value
- Maintaining enough liquid assets helps businesses cover short-term obligations and respond quickly to opportunities
What are liquid assets?
Liquid assets are assets a business can convert to cash within days or weeks without needing to find specialized buyers or accept steep discounts. They’re designed to move quickly and predictably into cash when you need it.
What separates liquid assets from other assets is market value retention. When you sell a liquid asset, you receive close to its current market price. Cash in a checking account holds its full value, and publicly traded stocks can be sold at their quoted price with settlement shortly after.
Non-liquid, or illiquid, assets behave differently. Real estate can take months to sell, and rushing the process often means accepting a lower price. Equipment and inventory face similar challenges because buyers, pricing, and timing are less certain.
Key characteristics of liquid assets
These four traits determine whether an asset is truly liquid:
- Active markets with many buyers and sellers: Popular stocks trade millions of shares daily, while Treasury securities attract constant investor demand
- Standardized or easily valued: Shares of stock are interchangeable, and cash equivalents have widely accepted values that don’t require negotiation
- Minimal transaction costs: Selling most liquid assets involves low fees or commissions, helping preserve their value
- No significant loss of value when sold quickly: You can access cash without waiting for ideal market conditions or taking a price hit
Businesses assess their financial flexibility by tracking how many of their assets meet these criteria.
Types and examples of liquid assets
Liquid assets fall into tiers based on how quickly and easily a business can convert them into cash. Assets in higher tiers offer faster access and more predictable value, while lower tiers involve more time, effort, or price uncertainty.
Tier 1: Most liquid assets
These assets function as cash or convert to cash immediately with no loss of value:
- Physical cash and currency: Bills and coins held on hand, including foreign currency, are ready to use immediately
- Checking and savings accounts: Funds can be withdrawn or transferred on demand, often within minutes through digital banking
- Money market funds: Interest-bearing accounts that maintain stable values while offering quick access to cash
- Treasury bills (T-bills): Short-term government securities with maturities under one year that trade in highly active markets
Businesses can typically access these assets within hours or the same business day.
Tier 2: Highly liquid assets
These assets convert to cash quickly through established markets, usually within a few business days:
- Stocks of publicly traded companies: Shares can be sold at current market prices on major exchanges with fast settlement
- Corporate bonds: Actively traded debt securities that may take slightly longer to sell than stocks
- Government bonds: Federal and municipal bonds with steady demand across different maturities
- Certificates of deposit (CDs) near maturity: CDs become more liquid as they approach maturity, with many banks allowing early withdrawal for modest penalties
- Mutual funds and ETFs: Redemption requests are processed at the end of each trading day, providing reliable liquidity
Most businesses can convert these assets to cash within 2 to 5 business days.
Tier 3: Moderately liquid assets
These assets are less liquid because conversion takes longer or values fluctuate more:
- Precious metals: Gold, silver, and platinum have established markets, but selling often involves dealer spreads or price discounts
- Foreign currencies: Major currencies trade easily, while less common currencies face thinner markets and wider spreads
- Some cryptocurrencies: Bitcoin and Ethereum offer reasonable liquidity on major exchanges, while smaller tokens can be difficult to sell without affecting price
Converting these assets typically takes several days and may involve higher transaction costs or price volatility.
Liquid vs. non-liquid assets: Understanding the difference
The difference between liquid and non-liquid assets comes down to how quickly you can convert them to cash and how much value you retain when you do. Assets with deep, active markets and stable pricing are easier to sell than those that require specialized buyers or lengthy processes.
Transaction complexity also matters. Selling publicly traded securities takes a few clicks, while selling real estate or private assets involves appraisals, negotiations, and legal steps that slow conversion and can reduce proceeds.
| Category | Liquid assets | Non-liquid (illiquid) assets |
|---|---|---|
| What it means | Can be converted to cash quickly at close to market value | Take longer to sell and often require discounts to convert to cash |
| Typical timeline | Same day to a few weeks | Months to years |
| Common examples | Cash, checking and savings accounts, money market funds, Treasury bills, publicly traded stocks and ETFs | Real estate, private equity, specialized equipment, collectibles, ownership in private businesses |
| Primary trade-off | Convenience and flexibility, often with lower returns | Potential for higher returns, but limited short-term access |
Examples of non-liquid (illiquid) assets
These assets typically take months or longer to convert to cash at fair market value:
- Real estate property: Commercial buildings, office space, and land require marketing, negotiations, and closing processes
- Private business ownership: Selling equity in a private company involves valuation work, due diligence, and finding qualified buyers
- Collectibles and art: Items often need specialized buyers and authentication, extending sale timelines
- Retirement accounts with penalties: IRAs and 401(k)s impose taxes and penalties for early withdrawals
- Long-term investments with lock-up periods: Hedge funds, private equity, and venture capital restrict withdrawals for extended periods
Because of these constraints, businesses generally avoid relying on non-liquid assets to meet immediate obligations.
Liquidity spectrum
Liquidity exists on a continuum rather than as a binary category:
| Liquidity level | Asset examples | Typical conversion time |
|---|---|---|
| Most liquid | Cash, checking accounts, money market accounts | Immediate to 1 day |
| Highly liquid | Publicly traded stocks, Treasury bonds, ETFs | 1–5 business days |
| Moderately liquid | Corporate bonds, CDs, precious metals | 1–4 weeks |
| Low liquidity | Real estate, private equity, collectibles | 3–12 months |
| Illiquid | Raw land, specialized equipment, fine art | 12+ months |
Balancing assets across this spectrum helps businesses meet short-term needs without sacrificing long-term growth.
Why liquid assets matter for your financial health
Liquid assets give your business flexibility when timing matters. Having cash or near-cash resources available makes it easier to handle short-term obligations, respond to unexpected expenses, and act quickly on opportunities without relying on emergency financing.
Liquidity also reduces operational risk. When revenue slows or expenses spike, liquid assets help you continue paying payroll, suppliers, and rent without selling long-term investments at unfavorable prices.
That flexibility comes with trade-offs. Cash and cash equivalents typically earn lower returns than long-term investments, and holding too much liquidity can limit growth. The goal is balance: enough liquidity to stay resilient and responsive, without letting excess cash sit idle.
For most businesses, maintaining an appropriate level of liquid assets supports stability, improves decision-making, and creates room to invest when the right opportunities arise.
How to calculate your liquidity position
Liquidity ratios help you measure whether your business can meet short-term obligations using assets that are easy to convert to cash. These ratios compare different types of liquid assets against current liabilities to show how much financial flexibility you have.
You’ll typically use three ratios, depending on how conservative you want the measurement to be.
Current ratio
The current ratio measures whether your business has enough current assets to cover liabilities due within the next 12 months.
Current ratio = Current assets / Current liabilities
A ratio of 2.0 means your business holds $2 in current assets for every $1 of current liabilities. Many businesses aim for a current ratio between 1.5 and 3.0, though acceptable ranges vary by industry.
Example: Your company has $500,000 in current assets, including cash, accounts receivable, inventory, and short-term investments, and $250,000 in current liabilities.
$500,000 / $250,000 = 2.0
A current ratio of 2.0 indicates you have sufficient assets to cover near-term obligations.
Quick ratio (acid-test ratio)
The quick ratio provides a stricter view of liquidity by excluding inventory, which may take time to sell. It’s useful when you want to assess whether your business can meet obligations without relying on inventory conversion.
Quick ratio = (Current assets – Inventory) / Current liabilities
Retail businesses often operate with lower quick ratios because inventory makes up a large share of assets, while service-based businesses typically maintain higher quick ratios due to minimal inventory.
Example: If your company has $500,000 in current assets and $150,000 in inventory, subtract inventory to get $350,000 in highly liquid assets. Divide by $250,000 in current liabilities.
($500,000 – $150,000) / $250,000 = 1.4
A quick ratio of 1.4 means you can cover short-term obligations even without selling inventory.
Cash ratio
The cash ratio is the most conservative liquidity measure because it includes only cash and cash equivalents such as money market accounts and Treasury bills.
Cash ratio = (Cash + Cash equivalents) / Current liabilities
A cash ratio of 0.5 or higher generally signals strong immediate liquidity, though businesses with predictable revenue or reliable credit access may operate comfortably at lower levels.
Example: Your business holds $100,000 in cash and $50,000 in money market accounts, for $150,000 in cash equivalents, and $250,000 in current liabilities.
($100,000 + $50,000) / $250,000 = 0.6
This means you could immediately cover 60% of your short-term obligations using only cash on hand.
How much should you keep in liquid assets?
A common guideline is to hold enough liquid assets to cover 3 to 6 months of operating expenses, then adjust based on how predictable your cash inflows are and how quickly you could access outside financing. Businesses with volatile revenue or long customer payment cycles typically need a larger buffer.
Factors that influence your liquidity needs
- Revenue stability: Seasonal or project-based revenue increases the need for liquid reserves
- Fixed obligations: Payroll, rent, and debt payments raise minimum liquidity requirements
- Access to credit: Reliable credit lines can supplement, but not replace, cash reserves
- Growth plans: Hiring, expansion, or large purchases often require additional near-term liquidity
- Customer payment timing: Longer payment terms and slower collections increase cash needs
How Ramp helps improve liquidity
If you calculate your liquidity ratios and find that your business isn’t as liquid as you’d like, don’t panic. This is where Ramp can help.
We designed our corporate card to strengthen your finances. Ramp offers credit limits higher than traditional business credit cards, and our 30-day payback period can help increase your liquidity by granting you more purchasing power and flexibility.
On top of that, Ramp's AI analyzes all your business transactions to identify savings opportunities. Our software gives you increased visibility into your finances, allowing you to track and measure your company's spend in real time, giving you more control over your liquidity.
Try an interactive demo to learn more about how Ramp helps customers save an average of 5% a year across all spending.
FAQs
Yes. Publicly traded stocks are considered liquid assets because you can sell them on major exchanges quickly and convert them to cash within a few business days.
Conversion speed depends on the asset. Cash and checking accounts provide immediate access, while assets like stocks and bonds typically convert to cash within 1 to 5 business days after settlement.
There’s no single ideal percentage. Many businesses aim to keep enough liquid assets to cover several months of operating expenses, then adjust based on revenue stability, access to credit, and risk tolerance.
Retirement accounts such as 401(k)s and IRAs are technically liquid, but early withdrawals often trigger taxes and penalties. Because of these costs, they’re generally not practical for meeting short-term cash needs.
Lenders view liquid assets favorably because they show your ability to make payments during revenue disruptions. Higher liquidity can improve approval odds and lead to better borrowing terms.
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