Is stock on the NYSE or NASDAQ normally considered a "liquid asset" on a balance sheet?
asked Nov 28, 2018 at 21:36
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3google.com/search?q=are+stocks+liquid+assets– ceejayozCommented Nov 28, 2018 at 21:46
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3If you're asking for specific accounting treatment of stocks, that might be a different answer depending on the context (is this a company whose business is holding stocks or a company that is investing in another public company). Certainly they are "liquid" in the broad sense of the term.– D StanleyCommented Nov 28, 2018 at 23:12
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As any marketable securities: traded on a Public Exchange at a reasonable price.– user79037Commented Nov 29, 2018 at 2:12
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2 Answers
Two key components to consider in answering:
(1) How liquid is 'liquid'? Stock might be more liquid that property, but less liquid than bonds. The main reason stock is consider illiquid, is because selling it on short notice may require you to sell during an economic downturn. Overall, a rule of thumb for US equity growth is 7% annually, but in a given year or month, your holdings might still decrease by say 20%.
(2) Shares in what? A share in APPL can be sold in seconds, likely identically to the last posted price. A share in a penny stock might be able to be sold shortly, at a bit of a gap from the last posted price. A share in a private company might take years to sell, if you can even find a buyer at all.
answered Nov 28, 2018 at 22:20
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1I specifically said NYSE and NASDAQ so penny stocks are not relevant. Commented Nov 28, 2018 at 22:26
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@FiveBagger This is a generic answer, but there are stocks on the NYSE that I would consider 'penny stocks'; not every stock on the NYSE has the same liquidity. Commented Nov 29, 2018 at 13:50
Do you have an example that you're looking at?
GAAP just indicates liquid as "readily able to convert to cash," which includes publicly traded common stock generally; but not private company stock, which is not liquid. This criteria also generally qualifies an asset as a "current asset." Typically, companies will have some rough guideline of the makeup of their current assets. Companies generally hold domestic and/or foreign government debt, foreign currency and various currency related derivatives as current/liquid assets.
It's also not terribly common for public companies to own common stock in other public companies without specific disclosure and generally a broad business relationship, unless the company is an investing business... When you think about it, that makes sense. If I invest in XYZ, the management at XYZ should have a better use for the capital than simply buying shares of ABC to hold in the current assets.
