Question

1. Assess the liquidity of the following assets: plant, unlisted securities, listed securities, head office building located in the centre of a large city, ships and aircraft, commercial paper, raw materials inventories, work-in-progress inventories.

2. What is your view of a company which has seen a huge increase in sales due to a significant drop in prices and a strong volume effect?

3. Is financial expense included in cash flow from operating activities?

4. Provide several examples illustrating the difference between cash receipts and revenues, cash expenses and costs.

5. Is the permanent part of working capital liquid?

Answer 1

ANs 1) Liquidity simply means how quickly an assets can be converted into a cash form hence If I have to assess the liquidity of the following assets, it would be like this:

The most liquid assets would Listed securities and commercial paper since for them there can be many buyer and these assets are also traded on exchanges, hence these are the most liquid assets.

The medium/ moderate liquid assets would be like Raw material, Work in progress, unlisted securities, head office building located in the center of a large city, for these assets you will not have many buyers but you can get such buyers easily in industry specific.

The least liquid assets would be like Plant, ships and aircraft, to sell and realize money in cash for these assets are un uphill task since for these assets you will find very fewer buyer. hence these assets are least liquid assets.