Net Liquid Assets

Net liquid assets are a strict measure of an immediate or near-term liquidity position of a firm, calculated as liquid assets less current liabilities. Liquid assets are cash, marketable securities and accounts receivable that can be readily converted to cash at their approximate current value.

The amount of net liquid assets is one of a few measures that gives a snapshot of the financial condition of a firm. Cash and marketable securities are ready to deploy, while accounts receivable could be turned into cash within a short period of time, though perhaps not completely as there is typically a small percentage of bad debt associated with aged receivables. Inventory does not qualify as a liquid asset because it cannot be readily sold without a significant discount. Current liabilities mainly encompass accounts payable, accrued liabilities, income tax payable and current portion of long-term debt for the average company. Subtracting current liabilities from the above liquid assets shows the financial flexibility of the company to make a quick payment.

The Container Store Group, Inc. as of December 30, 2017, had the following components on its balance sheet for current assets and current liabilities:

Current Assets

• Cash: $22.7 million
• Accounts Receivable: $29.5 million
• Inventory: $110.5 million
• Prepaid Expenses: $11.7 million
• Income Tax Receivable: $1.5 million
• Other Current Assets: $10.3 million

Current Liabilities

• Accounts Payable: $53.8 million
• Accrued Liabilities: $73.5 million
• Current Portion of Long-Term Debt: $9.5 million
• Income Tax Payable: $1.7 million

Net liquid assets as of this date would be Cash + Accounts Receivable - Current Liabilities = -$86.3 million. The negative net liquid position of the company may be a concern, but this situation is typical of a retailer. The trend of the net liquid position would be more informative for an analyst.