liquidity ranks
Why are intangible assets considered more liquid than property and less liquid than inventory?
2 answers ( 0 marked as helpful)
Hi Olaf,
Intangible assets are considered more liquid than property but less liquid than inventory due to the ease and speed with which they can typically be converted into cash, relative to other asset types:
Liquidity Compared to Property: Intangible assets, like patents or trademarks, are often easier and faster to transfer than physical property. Real estate or machinery, for instance, can take a long time to sell and may require complex transactions and legal procedures. Intangible assets don’t have the physical limitations or the same high transaction costs, making them somewhat easier to liquidate.
Liquidity Compared to Inventory: Inventory is often sold directly to customers as part of normal business operations, making it the most liquid of the three in practical terms. It’s often produced specifically for sale, has predictable buyers, and can be turned into cash faster than intangible assets, which may require more specialized buyers and legal or valuation procedures.
Therefore, intangible assets sit in the middle: they are less encumbered than property but still require more time and effort to convert to cash than inventory.
I hope this answers your question.
Best,
Antoniya
Intangible assets are considered more liquid than property but less liquid than inventory due to the ease and speed with which they can typically be converted into cash, relative to other asset types:
Liquidity Compared to Property: Intangible assets, like patents or trademarks, are often easier and faster to transfer than physical property. Real estate or machinery, for instance, can take a long time to sell and may require complex transactions and legal procedures. Intangible assets don’t have the physical limitations or the same high transaction costs, making them somewhat easier to liquidate.
Liquidity Compared to Inventory: Inventory is often sold directly to customers as part of normal business operations, making it the most liquid of the three in practical terms. It’s often produced specifically for sale, has predictable buyers, and can be turned into cash faster than intangible assets, which may require more specialized buyers and legal or valuation procedures.
Therefore, intangible assets sit in the middle: they are less encumbered than property but still require more time and effort to convert to cash than inventory.
I hope this answers your question.
Best,
Antoniya
Thank you Antoniya :)
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