Which one of the following statements related to liquidity is correct?
A) Liquid assets tend to earn a high rate of return.
B) Liquid assets are valuable to a firm.
C) Liquid assets are defined as assets that can be sold quickly regardless of the price obtained.
D) Inventory is more liquid than accounts receivable because inventory is tangible.
E) Any asset that can be sold is considered liquid.

Question

Quizplus · Accepted Answer

Liquidity refers to the ability of an asset to be easily sold or converted into cash without loss of value. Liquid assets are valuable to a firm because they provide a quick source of cash that can be used to cover unexpected expenses or take advantage of investment opportunities. While liquid assets may earn some return, they generally do not earn as high a rate of return as less liquid assets such as real estate or private equity. Inventory is typically less liquid than accounts receivable because it may take longer to sell and may also be subject to market fluctuations, whereas accounts receivable represent amounts owed by customers that are expected to be paid within a short period of time. Not all assets can be considered liquid; for example, some assets may be difficult to value, or may require complex legal or regulatory processes to sell.

Which One of the Following Statements Related to Liquidity Is