Liquid Assets in Firm Essay

What will your protrudelook towards maintenance of fluidity summations to pick up that the firm has commensurate coin in hand to wreak its obligations at all meters? Almost every action of confedeproportionn has pecuniary implications, manager responsible for or with oversight of silver watercourse be sick down directly involved in mevery officiateal areas of the line. exchange in mix manager although in large partnership the financial management function whitethorn be broken down into various segments and the hard currency move management segment may concern itself chiefly with diddle condition management issues, or the daily hard capital flow management task.Examples of these would be the maintenance of that minimum balance in non-interest bearing swear accounts, the private road of excess hard currency in into oblivious- call investiture , and the maintenance of comme il faut cash balance to cover the normal operating expenses of the company tha t essential(prenominal) be paid from day to day. In any event, those responsible for neat preconditionination cash flow essential consider the enormous term financial management objective of the company.Objectives of the Financial Management1. To ensure that the company always has enough cash to meet its legal obligations and avoid il mobileity i.e. to adjudge adequate short term financial flexibility.2. To arrange to obtain whatever funds are required from external sources at the respectable conviction , in the right form and the best possible terms.3.To ensure that the companies assets and liabilities up-to-the-minute and long term, financial and operating are utilized as efficaciously as possible.4.To forecast and plan for the financial requirement of future operations.5.To wanton all decisions & recommendations on the basis of one primary criterion, maximizing the long term re cling to of the organization . this objective is attained in a publicly owned corpor ation through maximization of the wealth of the proprietor s rewardholders by maximizing stock wrong. Liquid AssetAn asset that displace be converted into cash apace and with minimal impact to the price received. Liquid assets are generally regarded in the same light as cash because their prices are relatively stable when they are sold on the open market. Liquid assets are cash on hand or any tangible or intangible item that can be converted quickly and easily into cash, typically within 20 days, without losing oftentimes of their re time value. These assets are among the mostbasic types of financial resources used by consumers, crinklees, and investors. Cash and checking accounts are the two most obvious forms of pellucid assets.Currency legitimate tender for purchases and to settle outstanding debts, currency remains the most public type of liquid asset used consistently by sell consumers. Money that is deposited into a flowing account is considered to be a liquid asset because it is possible to readyly access the funds in holy order to settle debts. The debit card offers consumers even greater access to immediate liquid assets.InvestmentsSome interest-bearing investment fundss can be liquidated quickly, qualifying them as liquid assets. Money market fund shares, bonds, mutual funds, and the cash value of a life insurance policy are examples of investments that can render quick cash when necessary. Certificates of deposit and stocks cogency also qualify below this definition. While the actual market liquid of each asset may vary, the key is that on that point are always people looking to debauch these items, so they can be sold relatively easily. In the crusade of roughly jointly owned assets, only a percentage of an asset could be considered liquid.Other AssetsThe final settlement awarded by a judicatory for damages in a lawsuit could also be considered to be a liquid asset, depending on the terms of payment specified by the court. Tax refunds and the balances of trust funds are often implyd in the working definition of liquid assets.Less Liquid and Illiquid AssetsMortgages are sometimes considered a liquid asset, but they are much less liquid than many other types. Real estate is also more apparent to sold at less than its value if it must be liquidated quickly if the market is unstable, it may be difficult to determine the true value of real estate as well. Since a key part of fluidity is that the asset be sold at or very conterminous its actual value, this actor that real estate is often considered illiquid or not easy to sell. Any item for which there is no establishedvalue is not considered to be a liquid asset, even if that item dexterity be sold for a high price. When the market for the item is nice or uncertain, a bargain could significantly affect its value. Even stock, normally considered a liquid asset, could be illiquid if a large block is put up for sale, which could lower its market value.Busi ness AssetsFor clientelees, liquid assets can include cash, marketable securities, and receivables. Cash equivalents, which can be quickly converted to cash as needed, are also considered to be liquid. A business inevitably to be liquid enough to meet expenses, but not charter so much cash on hand that short-term investment opportunities are not pursued. Companies often divide their assets into net liquid, quick, and up-to-the-minute assets. lowest liquid assets are what would be left if all of the businesses debts were paid off. busy assets are those that can be converted into cash immediately, while current assets are those that can be converted within a year. For an asset to be liquid it needs an established market with enough participants to truckle the selling without materially impacting the price of the asset. There also needs to be a relative ease in the transfer of ownership and the movement of the asset. Liquid assets include most stocks, money market instruments an d government bonds.The foreign exchange market is deemed to be the most liquid market in the world because trillions of dollars exchange hands each day, making it impossible for any one individual to influence the exchange rate. Liquid assets include items much(prenominal) as accounts receivable, demand and time deposits, gilt edged securities. In some countries, precious metals (usually gold and silver) are also considered liquid assets. Generally speaking, you must limit expenses and ensure that some of your assets are in the form of short term assets. The higher your short term assets and the less your short term debt, the founder your ability to pay the debt (short term fluidity ratio / liquidity ratio abet you determine this).The ratio analysis will be the guide stick for the liquidity ratio.Maintenance OF LIQUID ASSETS TO ENSURE ADEQATE bills IN HANDA common problem for small business owners is the struggle to maintain adequate cash flow levels. Without cash, a business m ust eventually close its doors. Understanding and managing the companys cash flow will dish up to measure the amount of cash on hand and prepare for cash flow shortfalls in the future. a. Do the mathematics Cash flow is the movement of money in and out of a business. Cash inflow is the movement of money into your business, and most likely comes from the sale of goods or services to your clients. Cash fountain is the movement of money out of your business, and is generally the result of paying expenses. By projecting the inflow and outflow of your businesses cash, you can determine the amount of cash that will be visible(prenominal) during a designated period of time. b. Prepare Your Profit and Loss Statement Your business plan should contain several financial statements. If youre a start-up businessman, behind your estimates of cash inflow and outflow on the taxations and expenses listed in your profit and detriment statements. Complete your profit and loss statement before co mpleting your cash flow statement. Over time, you will be able to base cash inflows and outflows on actual historical data. c. Develop a Cash feast Statement A cash flow statement measures cash flow over time.During your first year in business, you should include a month-by-month cash flow statement in your business plan. If youre seeking a loan, an important feature of your cash flow statement is that it will supply the lender exactly how youre going to afford loan payments. In order for a business to stay afloat, it must maintain an adequate level of cash. These are some which we can apply to improve the cash flow in our organization. Adequate cash means that you can meet your obligations. It is to remember that cash is king and life blood of the organization. The following points help make it easier to maintain the adequate cash level and an improvement in cash arrangement can be seen sooner rather than subsequently1. Check Customers Credit Histories Decide the type of custom er to whom you want to expire assurance. Do you want to fool a particular cut-off credit strike? If you extend credit to customers with questionable credit histories or low credit scores, you may experience late payments or no payments, which will late down your cash flow and increase your collection costs.2. Keep surmount of Your Customers Payments Have up-to-date payment records. Keep accurate payments records by apply a specialized accounting software program that will save track of your invoices and when payments are made. If customers are late with their payments, it could cause a cash flow bottleneck for you. Accurate record keeping will help solve this problem.3. Set Appropriate Credit terminuss and Offer a Cash Discount Make sure your customers understand how long they have to pay their bill. In order to speedup the cash they pay, you might want to offer a cash discount to any customer that pays in a short period of time, designated by you, or to a customer who pays cash.4. Extend Your Timetable for Making Cash Payments Pay your bills on time and take advantage of any cash discounts your suppliers offer you. However, hold onto your cash as long as possible. Dont pay bills weeks in the first place than they are due. Your company can use that cash balance, rather than allow your supplier use your companys cash.5. Cut Back on Spending Wherever Possible Do you really need to take money out of your business for a Hawaiian vacation right now? Cut back on spending until it is less than your revenue on a month-by-month basis. If an emergency happens, then you will be watchful from a cash standpoint.6. Increase Your Sales Make sure you arent holding on to ancient inventory. If you are, mark it down and sell it. Storing it is cost you money and selling it at a lower price is better than not selling it at all. The longer you hold on to obsolete inventory, the less likely it is to sell.7. Think before investing The price and value of investments a nd their income fluctuates you may get back less than the amount you invested. Remember that how an investment bring abouted in the past is not a guide to how it will perform in the future. We need to project the cash flow statement, and employee the companies fund in short term investment. Along with that we have to check expenses. And maintain the liquid assets. Projected cash flow statement is the guided stick. Our sales, realizations, and fixed and protean expenses need to be kept in mind while opinion the balanced need of liquid assets. We may consider the short term investments with reference to interest rate and surplus funds. Generally it is indispensable that we must limit expenses and ensure that some of the assets are in the form of short term assets. The higher short term assets and the less your short Term debt, the better your ability to pay the debt (short Term liquidity ratio / liquidity ratio help you determine this).The ratio analysis will be the guide stick for the runniness ratio. The short term creditors of a company like supplies of good of credit and Commercial banks providing short-term loans, are primarily interested in knowing the companies ability to meet its current or short term obligations of a firm can be met only when there are sufficient liquid assets. Therefore, a firm must ensure that it does not suffer from lack of liquidity or the mental object to pay its current obligations due to lack of goodliquidity position, its grace of God in the market is likely to be effected beyond repair. Liquidity refers to the ability of a concern to meet its current obligations as and when there become due. The short-term obligations are met by realizing amounts from current, floating or spread assets.The current assets should either be liquid or near liquidity. These should be convertible into cash for paying obligations of short-term nature. The sufficiently or inadequacy of current assets should be assessed by comparing them with sho rt term liabilities. If current assets can pay off current liabilities, then liquidity position will be satisfactory. The standard current ratio is 1 1.33 means any firm / company is having adequate funds to meet its obligation in time. The firm has to maintain core current assets which is easily achievable at all times. The laid down bench mark ratio to maintain the ratio of core current assets to current liabilities is 11