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What Are Net Liquid Assets?

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Last editedOct 20212 min read

When your business needs a quick infusion of cash, it’s often sensible to turn first to liquid assets before taking on new debt. So, how liquid are your assets, and what is their total value? Net liquid assets provide a simple measure of liquidity, an important metric for any business or investor to track. We’ll identify what qualifies as net worth liquid assets below, as well as how to use this calculation. 

Net liquid assets explained

The term “net liquid assets” simply refers to the total sum of a business’s cash and other liquid assets, minus its current liabilities. By subtracting these current liabilities, you’ll arrive at the business’s net worth liquid assets total.

There are several types of assets that qualify as liquid:

  • Cash

  • Stocks

  • Marketable securities

  • Accounts receivable

In the case of securities and accounts receivable, these only qualify as liquid assets when they can be quickly converted to cash without losing any significant value. This means that some current assets, such as income tax receivables, wouldn’t qualify as liquid. Assets like inventory also don’t qualify as liquid because they take a longer timeframe to sell without losing current value. You’d have to deeply discount your existing inventory to offload it in a fast enough timeframe to qualify.

A net liquid assets calculator will also take the value of current liabilities into account. This includes things like accrued liabilities, accounts payable, and some types of short and long-term debt.

What do net liquid assets show you?

By weighing liquid assets against liabilities, you can gain a quick insight into how easily a business would be able to pay off its debts or drum up cash for a new project. It’s generally considered best for companies to have a strong level of net liquid assets. This means that if required, the business could quickly pay off suppliers and short-term debts without strain.

You can use this figure in calculations like the liquid assets to net worth ratio to assess financial health. When liquid assets form a high percentage of overall net worth, it shows that the business can purchase new equipment or engage in an expansion without financing. It also indicates how well the business can ride out periods of economic downturn.

Without adequate liquid assets, the company would struggle to meet sudden financial obligations during periods of slow sales or downturn. It’s also more difficult to obtain financing, as banks look at things like the liquid assets to net worth ratio to determine creditworthiness. On the other hand, too many net liquid assets aren’t always a positive in the eyes of investors, because it shows that the business might not be adequately reinvesting its money into growth. As a result, you should aim to strike a balance when calculating this ratio.

What are liquid unrestricted net assets?

A related term is liquid unrestricted net assets, which applies to nonprofit organizations rather than for-profit businesses. Unrestricted net assets include any donations made without strings attached. In other words, these funds aren’t allocated for specific purposes or government restrictions. To calculate liquid unrestricted net assets for a nonprofit, you can subtract liabilities from unrestricted net assets.

Net liquid assets calculator

Calculating net liquid assets is simple using the following formula:

Net Liquid Assets = Liquid Assets – Current Liabilities

For example, imagine that Company ABC has $2 million in cash, $1 million in marketable securities, and $2 million in current liabilities. You can plug these figures into the formula above:

$2 million + $1 million - $2 million = $1 million

Company ABC has a positive liquid asset position of $1 million, which means it can easily pay its existing liabilities with plenty of money for reinvestment. This puts it in an advantageous position to attract new investment and financing if necessary.

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