What Is Liquidation Margin? Buying securities on margin allows a trader to acquire more shares than can be purchased on a cash-only basis. If the stock price goes up, earnings are often higher because an investor holds more shares. However, if the stock price falls, traders may lose more than their initial investment. The liquidation
What Is a Liquidation Preference? A liquidation preference is a clause in a contract that dictates the payout order in case of a corporate liquidation. Typically, the company’s investors or preferred stockholders get their money back first, ahead of other kinds of stockholders or debtholders, in the event that the company must be liquidated. Liquidation
What Is Liquidation Value? Liquidation value is the net value of a company’s physical assets if it were to go out of business and the assets sold. The liquidation value is the value of company real estate, fixtures, equipment, and inventory. Intangible assets are excluded from a company’s liquidation value. Key Takeaways Liquidation value is
What Is a Liquid Certificate of Deposit (CD)? A liquid certificate of deposit is a type of CD that allows you to make withdrawals without incurring a penalty. The funds in the account are accessible throughout the lifetime of the product—unlike most traditional CDs, which apply a hefty penalty fee for withdrawing early, reducing the interest earned
What Is Liquidity? Liquidity refers to the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price. The most liquid asset of all is cash itself. Key Takeaways Liquidity refers to the ease with which an asset, or security, can be converted into ready cash
What Is a Liquidity Crisis? A liquidity crisis is a financial situation characterized by a lack of cash or easily-convertible-to-cash assets on hand across many businesses or financial institutions simultaneously. In a liquidity crisis, liquidity problems at individual institutions lead to an acute increase in demand and decrease in supply of liquidity, and the resulting
What Is a Liquidity Cushion? A liquidity cushion refers to the cash or highly liquid assets that an individual or company might hold to meet unexpected demands for cash during a liquidity crisis. Key Takeaways Liquidity refers to the cash assets a company or individual has on hand. Assets that are not cash and hard
What Is Liquidity Preference Theory? Liquidity Preference Theory is a model that suggests that an investor should demand a higher interest rate or premium on securities with long-term maturities that carry greater risk because, all other factors being equal, investors prefer cash or other highly liquid holdings. Key Takeaways Liquidity Preference Theory refers to money demand
What Are Liquidity Ratios? Liquidity ratios are an important class of financial metrics used to determine a debtor’s ability to pay off current debt obligations without raising external capital. Liquidity ratios measure a company’s ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio, quick ratio
What Is Liquidity Risk? Liquidity risk is the risk that a company or individual will not have enough cash to meet its financial obligations (pay its debts) on time. Liquidity refers to the ease at which an asset can be converted into cash without negatively affecting its market price; the risk arises when a company
