This is concerned with how fast an asset can be converted into cash. All assets have varying degrees of liquidity, they can be ranked as follows (with the most liquid asset first): cash, shares in other businesses, trade and other payables (debtors), inventory (stock), non-current (fixed assets). Prudent financial management requires the assets of a business to be ‘appropriately liquid’ to enable the appropriate amount of cash to be available at any point of time.