Liquidity Path

DEFINITION of 'Liquidity Path'

The path taken by a company to provide liquidity for company founders or owners. The most common liquidity paths are through mergers and acquisitions to a larger company, and through initial pubic offerings (IPOs) of stock to investors.

Without a path to liquidity, private company owners may not be able to convert their ownership in the company to any other means of currency or investment.

BREAKING DOWN 'Liquidity Path'

Most private companies of a sufficient size are constantly evaluating different liquidity paths. Some owners may simply be looking for a way to "cash out", or looking to the liquidity achieved in an IPO to help fund future business growth and expansion efforts.

The state of the overall economy and the stock markets may affect the timing and direction of a liquidity path. If the stock market is currently weak, investors may have little or no appetite for IPOs, making that option less favorable because the company would likely not receive a fair price for its shares. The company could choose to wait out the markets, or change course and sell to another company or private equity investor directly.

RELATED TERMS
  1. Liquid Market

    A market with many bid and ask offers, low spreads and low volatility. ...
  2. Dollar Volume Liquidity

    A stock or exchange-traded fund's share price times its average ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  5. Liquidator

    In the most general sense, a person or entity that liquidates ...
  6. Path Dependent Option

    The right, but not the obligation, to buy or sell an underlying ...
Related Articles
  1. Options & Futures

    Understanding Financial Liquidity

    Understanding how this measure works in the market can help keep your finances afloat.
  2. Markets

    Why Are Companies Taking Longer To Go Public?

    Learn why private companies are waiting longer to have their IPOs. Understand why it may be more advantageous for a company to stay private.
  3. Active Trading

    Understanding Liquidity Risk

    Make sure that your trades are safe by learning how to measure the liquidity risk.
  4. Options & Futures

    Reverse Mergers: The Pros And Cons

    Reverse mergers can provide excellent opportunities for companies and investors, but there are still some downsides and risks.
  5. Investing Basics

    Understanding Liquidity Risk

    Learn about the two types of liquidity risk: funding liquidity risk and market liquidity risk.
  6. Personal Finance

    The Ups And Downs Of Initial Public Offerings

    Initial public offerings aren't the best option for every company. Consider these factors before "going public."
  7. Investing News

    6 IPO Market Trends to Watch in 2016

    Find out more about the outlook for the initial public offering (IPO) market in 2016. Is it expected to improve or will it be more of the same?
  8. Investing

    Small Cap Investing: How to Think About Illiquidity

    Do your homework, have a long term view, exercise patience, you'll find that investing in small market capitalization stocks is no riskier than investing in large stocks
  9. Fundamental Analysis

    Top Reasons IPO Valuations Miss The Mark (MS, ZNGA)

    The costly services of investment banks don’t necessarily guarantee accuracy in IPO pricing.
  10. Investing Basics

    How An IPO Is Valued

    The process of determining a company’s initial share price includes quantitative and qualitative components.
RELATED FAQS
  1. Is liquidity calculated by flow?

    Read about the differences between economic liquidity, financial liquidity and asset liquidity and how each respective type ... Read Answer >>
  2. What is liquidity risk?

    Learn how to distinguish between the two broad types of financial liquidity risk: funding liquidity risk and market liquidity ... Read Answer >>
  3. Is it important for a company always to have a high liquidity ratio?

    Understand the significance of the liquidity ratio and how it is used in conjunction with other measures to arrive at an ... Read Answer >>
  4. What is the difference between a bank's liquidity and its liquid assets?

    Understand the relationship between a bank's liquid assets and its liquidity and how the financial crisis demonstrated the ... Read Answer >>
  5. What affects an asset's liquidity?

    Learn about what affects an asset's liquidity, including examples of liquid and fixed assets, and how a company's liquidity ... Read Answer >>
  6. How much liquidity is considered too much liquidity?

    Learn about the risks of holding too much cash or investing in assets that are too liquid, and discover how liquidity is ... Read Answer >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  3. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  4. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  5. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  6. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center