Fixed assets are long-term tangible assets used in business operations. They provide lasting financial benefits with a useful life exceeding one year, aiding revenue generation. Investors analyze these assets—and metrics like the fixed asset turnover ratio—to assess business viability before investing. Companies leveraging fixed assets efficiently often gain market advantages. Proper maintenance is crucial since these assets significantly influence company valuation.
Examples of Fixed Assets:
- Land
- Buildings and facilities
- Machinery
- Furniture
- Vehicles
- Computer equipment
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Liquid Assets
Liquid assets are balance sheet items convertible to cash within a short period (typically ≤90 days) without substantial value loss. They serve as emergency funds for short-term obligations like loans repayable within a year.
Examples of Liquid Assets:
- Cash in hand/at bank
- Accounts receivable
- Treasury bills
- Mutual funds
- Bonds
- Stock investments
Key Differences Between Fixed Assets and Liquid Assets
| Aspect | Fixed Assets | Liquid Assets |
|--------------------------|------------------------------------------------------|----------------------------------------------------|
| Purpose | Long-term operational use; revenue generation | Short-term liquidity; emergency funding |
| Convertibility | Difficult to convert to cash | Easily convertible to cash |
| Valuation | Cost minus depreciation | Market value or cost (whichever is lower) |
| Financing | Long-term loans/equity | Short-term funds |
| Holding Period | >1 year | <1 year |
| Revaluation Reserve | Created if asset appreciates | Not applicable |
Conclusion
A balanced mix of fixed and liquid assets is vital for business sustainability. Fixed assets drive long-term growth, while liquid assets ensure short-term financial flexibility.
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FAQs
Q1: Which ratios evaluate liquid assets?
A: Current ratio and quick ratio.
Q2: What defines a liquid asset?
- Tradable in organized markets.
- High customer interest.
- Easily transferable ownership.
Q3: How are assets calculated?
A: Assets = Liabilities + Shareholder’s Equity.
Q4: Key features of fixed assets?
- Useful life >1 year.
- Depreciable (except land).
- Essential for production.
Q5: Calculate current assets if:
- Cash (hand/bank): Rs. 70,000
- Prepaid expenses: Rs. 5,000
- Investments: Rs. 342,000
A: Total = Rs. 417,000.