Liquidity Event

  

Categories: Trading, IPO

Like an IPO. It's when you get cash for selling something...not-cash-y.

Sell your home for cash? Liquidity event. Sell your piano for cash? Liquidity event. Barter your John McEnroe classic tennis racket for a set of Jack Nicklaus wedges? Not a liquidity event, because you didn't get cash.

Related or Semi-related Video

Finance: What is Liquidity?64 Views

00:03

Finance a la shmoop what is liquidity all right liquidity is

00:09

not this but liquidity is this alright liquidity or being liquid is the ability [A pool of water]

00:17

to pay for things with cash and in some parts of the world

00:21

moose pelts most pelts get your moose belt here five for a dollar you might own 4,000 acres of [Man wearing a hat stood by his land]

00:27

land in Alaska most your neighbors are well

00:30

moose but when you go into your local Ford dealer to buy a Ford f-150 with the

00:34

pimped-out tires and the intentionally off-road package the dealer wants to be [Man purchasing a Ford F150]

00:38

paid in cash not in Moose pelts. if you sold those pelts for cash and then paid

00:44

him and then you'd be liquid like the rest of the moose well in the real world [A table full of moose juice]

00:48

liquid things are stuff like stocks and publicly traded bonds and anything you

00:53

can find on eBay that'll turn into cash in less than a week or so original [Website showing Barbie doll and car for sale]

00:57

edition of Avengers comic yeah the one where Iron Man and Captain America share

01:01

their first kiss and that that one's as good as sold now on the flip side of the [Coin flipped]

01:05

coin long term investments like funding two kids in a garage who are building a

01:09

search algorithm with likely 10 years or more before an IPO [Kids using a computer in a garage]

01:12

yeah those investments are highly illiquid as in the opposite of cash

01:18

immediately on hand because there are rarely any other buyers of the private [Man playing the piano to a crowd]

01:22

company shares you bought when you invested in them at least not buyers for

01:25

a long illiquid time meaning that most people simply won't give you cash for

01:29

shares in a company with no profits little don't know revenues or even no [Graph of profits and revenue for a company]

01:33

website. So is your home liquid? err not so much but you can borrow against

01:39

it liquidly in other words sometimes

01:41

illiquid things can allow you to have liquidity you know like if you have a [Man stood by a home holding a mortgage paper]

01:46

mortgage of say a hundred grand on a home that's probably worth well over

01:49

half a million bucks then any bank will most likely let you borrow a couple

01:54

hundred grand pretty much at any time you want [Man borrowing home owner more money]

01:56

if you pledged the home as collateral in other words if you don't pay the bank

02:00

back they're going to start parking in your garage and pickin out drapes for [Car reversing into garage]

02:04

the living room as they repossess it to pay off the money you borrowed from them [Bank man repossessing the home]

02:08

promising to pay it back well fortunately this isn't a chemistry course so

02:12

there's no need to learn about the solidity and gas-idity[Examples of solids and gas]

02:15

Up Next

Finance: What is a Liquid Market?
17 Views

A liquid market is a market featuring high trading volumes, i.e. investors actually want to put their cash to work.

Finance: What is liquidity preference?
27 Views

What is liquidity preference? When a company goes under, a company’s assets are liquidated to pay back creditors and then shareholders. The liqui...

Find other enlightening terms in Shmoop Finance Genius Bar(f)