Q6Q
Question
What is meant by liquidity? Rank the following assets from one to five in order of liquidity.
(a) Goodwill.
(b) Inventory.
(c) Buildings.
(d) Short-term investments.
(e) Accounts receivable.
Step-by-Step Solution
Verified Answer
Liquidity can be defined as the easiness of converting assets into cash. The ranking of assets is made based on the time required to convert them into cash.
1Step 1: What is Liquidity
The efficiency of the business entity to generate cash as early as possible by selling its current assets is known as liquidity. Financial analysts use ratio analysis to determine the liquidity of the company.
2Step 2: Order of Liquidity
- Short-term investment.
- Accounts receivable.
- Inventory.
- Building.
- Goodwill.
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