What is Liquidity?
Liquidity is a measure of a company's ability to meet its short-term financial obligations, such as paying its bills and debts. It is typically assessed by looking at a company's cash and cash equivalents, as well as its ability to convert its assets into cash quickly and without significant loss.
Simply put, liquidity is the availability of cash on hand. These are marketable investments. In day-to-day business, liquidity is critical for having funds for unforeseen events. It’s also used to mitigate the risk of other investments. Liquidity is represented by cash, stocks, government bonds, and marketable securities.
In business, liquidity is defined as the company’s ability to pay short-term liabilities. The liquidity of a company represents its financial health. A positive liquidity ratio can also aid in obtaining a loan from the market for business expansion. To avoid a financial crisis and have cash reserves for the business, liquid assets are essential.
Did you know?
If a company’s current assets fall short of its current liabilities, it must seek alternative funding to meet its obligations. Nimblefincorp can help you calculate liquidity ratios to ensure you meet your payment obligations on time.
You can even get free consulting. Try it out right now.