LIQUIDITY
Liquidity is a complex area, and not easily distilled into a single figure. A university’s liquidity refers to how easily and quickly it can access funds to meet its short‑term obligations—such as paying suppliers, salaries, operating costs. It reflects the organisation’s ability to convert its assets into cash at short notice and without losing value. Here you'll find an explanation of some of the measures that impact a universities Liquidity.
Cash and Cash Equivalents (Most Liquid)
These are the core components of liquidity because they can be used immediately.
Cash on Hand
Notes and coins held within the business
Petty cash
Undeposited cash receipts
Cash at Bank
Current accounts
Instant-access savings accounts
These require no conversion and are available for immediate use.
Although universities will not necessarily hold restricted funds separately from unrestricted funds, liquidity will not be as healthy if some of the cash assets are restricted funds.
Short-term investments
Highly liquid short-term investments that can be converted into cash quickly (usually within 1–3 days).
Examples:
Treasury bills
Money market funds
Short‑term government securities
Deposit accounts with same‑day access
These provide liquidity and a modest return.
Although universities will not necessarily hold restricted funds separately from unrestricted funds, liquidity will not be as healthy if some of the cash assets are restricted funds.
Debtors
Money owed to the university by its customers (Students/SLC/Funding Councils/Research commissioners).
Considered liquid if the amounts are due soon and customers have a good payment history
Faster collection improves liquidity
Marketable Securities
Financial instruments that can be sold quickly in public markets.
Examples:
Publicly traded shares
Corporate or government bonds
They can typically be turned into cash rapidly, though their value may fluctuate. Borrowing may be preferable to converting shares/bonds to cash as it may not be the ideal time to sell.
Liquidity will not be as healthy as it appears if some of the assets are restricted funds and therefore cannot be sold for cash.
Borrowing
Examples:
Overdrafts
Revolving credit facilities
Unused lines of credit
These provide immediate access to funds when needed, supporting cash‑flow stability. However, they will only be available if a lender is convinced that the university can service the debt (afford the interest payments) and eventually repay the borrowing.
