Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market at a price reflecting its intrinsic value. In other words, liquidity is the ease of converting an asset into cash (per Investopedia). Liquidity is important to a business, especially in a time of crisis. No one expected a pandemic like the coronavirus (COVID-19) to have such a large impact on the U.S. economy. Contractors with a financial plan to handle a crisis will fare better than those without one. What contractors have all learned from this experience is that one thing can quickly change the course of the future.
Contractors that are highly liquid have a better chance of managing the financial constraints of this pandemic than those that are not. They will be able to turn their assets into cash faster for their true value. Low liquidity assets may be harder to sell for their true values. Most common examples of liquid assets are cash, certificate of deposits, marketable securities, short term loans, accounts receivables, bills receivables, stock, government bonds and promissory notes. Non-liquid assets include real estate, materials, equipment, collectibles and retirement accounts. Click here to read the entire article.