Which of the following is generally true regarding liquidity as it relates to the ﬁrm?
A) Liquidity is detrimental to a ﬁrm because it allows the ﬁrm to pay its bills more easily, thereby avoiding ﬁnancial distress.
B) Liquidity is valuable to a ﬁrm because liquid assets can be sold quickly without much loss in value.
C) Liquidity is valuable to a ﬁrm because a ﬁrm can borrow money using its liquid assets, such as a warehouse, as collateral.
D) Assets are generally listed on a ﬁrm's statement of ﬁnancial position in the order of increasing liquidity.
E) Liquid assets generally earn a large return, especially in comparison to illiquid assets.

Question

Quizplus · Accepted Answer

Liquidity is valuable to a firm because it allows the firm to quickly convert its assets into cash without much loss in value. This can be useful in meeting short-term obligations and unexpected expenses. Additionally, having liquid assets can improve the firm's creditworthiness, making it easier to obtain financing.

Which of the Following Is Generally True Regarding Liquidity as It