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A liquid asset is cash on hand or an asset that can be readily converted to cash. An asset that can readily be converted into cash is similar to cash itself because the asset can be sold with little impact on its value. (For more, see Understanding Financial Liquidity.)

For example, cash on hand is considered a liquid asset due to its ability to be readily accessed. Cash is legal tender that a company can use to settle its current liabilities. Suppose a person or a company has money in a checking or savings account. The cash in the account is considered liquid because it can be withdrawn easily to settle liabilities.

Investments are considered liquid assets because they can be readily liquidated. For example, shares of stock, bonds, money market funds and mutual funds are considered liquid assets. These assets can be converted to cash in a short period of time in the event a financial emergency arises. Generally, investments are considered liquid assets because they can be easily sold, depending on the investment.

An example of a non-liquid asset is a real estate investment because it can take months for a person or company to receive cash from the sale. For example, suppose a company owns real estate property and wants to liquidate because it has to pay off a debt obligation within a month. The company may take more than one month to sell its property. If the company wants to sell the property quickly, the value of the property can result in a loss. In this case, trying to liquidate a real estate investment can have a high impact on its value. (For related reading, see What is the impact of inflation on liquid assets?)

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