Which one of the following statements concerning liquidity is correct?
A)Fixed assets are more liquid than current assets.
B)Balance sheet accounts are listed in order of decreasing liquidity.
C)Liquid assets tend to be highly profitable.
D)The less liquidity a firm has,the lower the probability the firm will encounter financial difficulties.
E)Trademarks and patents are highly liquid.

Question

Quizplus · Accepted Answer

Liquidity refers to the ability of a firm to meet its short-term obligations as they come due. Current assets, which are expected to be converted to cash within a year, are generally more liquid than fixed assets, which have a longer conversion period. Balance sheet accounts are listed in order of decreasing liquidity, with current assets listed before fixed assets. Trademarks and patents are non-liquid or illiquid assets, as they cannot be easily converted into cash. Additionally, the less liquidity a firm has, the higher the probability it will encounter financial difficulties. Highly liquid assets tend to have lower profitability, as they provide a lower return than more long-term investments.

Which One of the Following Statements Concerning Liquidity Is Correct