Define liquidity and explain what a firm would need to do to ensure all of the...

Define liquidity and explain what a firm would need to do to ensure all of the current assets displayed on its balance sheet are liquid.

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Answer-

The term liquidity is the amount of cash and cash equivalents and liquid assets like marketables seurities, notes and accounts receivable that are available with the firm that can be converted into cash in short time or with in a span of one year. Theliquidity is important to meet the short term requirements of cash.

To ensure that all the current assets tht are displayed on its balance sheet are liquid the company should place all the items that are liquid under the current assets like cash and cash equivalents, markertable securities, notes and accounts receivable which can be converted into cash immediately or with in short time and should meet all the short term obligations required to meet all working capital needs.

The company should ensure that all the notes receivable and accounts receivable can be available with in one year and should not get delayed beyond one year. The items that takes longer than one year or more time to be converted into cash should be classified as non-current assets.

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