Liquidity refers to the ease with which a business can convert its assets into cash to meet short-term financial obligations.
It is a measure of how quickly and without significant loss an asset can be turned into cash. Highly liquid assets include cash, marketable securities, and accounts receivable, while less liquid assets include property, equipment, and inventory.
A company with high liquidity is better able to handle unexpected expenses or economic downturns.
Liquidity is often assessed using ratios like the current ratio or quick ratio, which compare a business’s liquid assets to its short-term liabilities, indicating its financial health.