Floating asset

From CEOpedia | Management online

A floating asset is an asset that cannot be immediately converted into cash, but can be converted into cash within a short period of time. Floating assets are often used by businesses to cover short-term liquidity needs. Examples of floating assets include:

  • Accounts Receivable: These are short-term debts that are owed to a business by customers for goods or services that have been provided. Accounts receivable are considered a floating asset since they can be converted into cash quickly.
  • Marketable Securities: These are investments such as stocks and bonds that can be bought and sold quickly. Marketable securities are considered a floating asset since they can be converted into cash easily.
  • Cash: Cash is the most liquid of all assets and is considered a floating asset since it can be converted into cash quickly.

Example of Floating asset

Floating assets are assets that can be quickly converted into cash to meet short-term liquidity needs. Examples of floating assets include:

  • Accounts Receivable: These are short-term debts that are owed to a business by customers for goods or services that have been provided. Accounts receivable are considered a floating asset since they can be converted into cash quickly.
  • Marketable Securities: These are investments such as stocks and bonds that can be bought and sold quickly. Marketable securities are considered a floating asset since they can be converted into cash easily.
  • Cash: Cash is the most liquid of all assets and is considered a floating asset since it can be converted into cash quickly.
  • Short-term Investments: These are investments that can be converted into cash within a short period of time. Examples of short-term investments include certificates of deposit, money market accounts, and Treasury bills.

Formula of Floating asset

When to use Floating asset

Floating assets are typically used to meet short-term liquidity needs. This could involve using floating assets to cover operating expenses or to finance new investments. Floating assets may also be used to increase working capital or to pay off short-term debts. Additionally, businesses may use floating assets to take advantage of investment opportunities that arise quickly.

Types of Floating asset

The three main types of floating assets are current assets, marketable securities, and cash.

  • Current Assets: These are assets that are expected to be converted into cash within a year. Examples of current assets include accounts receivable, inventory, and prepaid expenses.
  • Marketable Securities: These are investments such as stocks and bonds that can be bought and sold quickly.
  • Cash: Cash is the most liquid of all assets and is considered a floating asset since it can be converted into cash quickly.

In conclusion, the three main types of floating assets are current assets, marketable securities, and cash. Current assets are those that are expected to be converted into cash within a year, while marketable securities are investments that can be bought and sold quickly. Cash is the most liquid of all assets and can be converted into cash quickly.

Advantages of Floating asset

Floating assets provide businesses with the ability to quickly convert them into cash if needed, allowing businesses to meet their short-term liquidity needs. Floating assets also provide businesses with a certain degree of flexibility, as they can be sold quickly if needed. Finally, floating assets can also provide businesses with a degree of potential return, as they can be invested in with the hopes of generating a return on the capital.

Limitations of Floating asset

Floating assets have a few limitations that should be noted. First, they are not always reliable sources of cash since they may not be able to be converted into cash quickly. Second, they may also be subject to market fluctuations which can reduce their value. Finally, they may not be able to generate enough cash to cover the short-term liquidity needs of a business.

In conclusion, while floating assets can be used to cover short-term liquidity needs, they have a few limitations that should be taken into consideration when deciding on the best sources of cash. These limitations include a lack of reliability, potential for market fluctuations, and the possibility of not generating enough cash to cover the short-term liquidity needs of a business.

Other approaches related to Floating asset

Financial Ratios: There are several financial ratios that businesses can use to measure their liquidity, such as the current ratio, quick ratio, and acid test ratio. These ratios measure a company's ability to pay its short-term liabilities with its short-term assets. A higher ratio indicates a better liquidity position.

Cash Flow: The cash flow statement is a tool used to analyze a company's liquidity. It shows the inflows and outflows of cash over a certain period of time. This can be used to identify any issues with a company's ability to meet its short-term obligations.

In conclusion, there are a few approaches businesses can use to measure their liquidity, such as financial ratios, cash flow statements, and assessing the liquidity of their floating assets. By using these approaches, businesses can ensure they have enough cash on hand to meet their short-term obligations.


Floating assetrecommended articles
Debt-to-equity ratioSolvency ratiosAsset coverage ratioQuick assetsCash Flow-to-Debt RatioOperating cash flow ratioEvergreen LoanCurrent portion of long-term debtCapital gearing

References