Liquidity
The ease with which assets can be converted to cash.
Liquidity measures how quickly and easily assets can be converted to cash without significant loss of value. Cash is the most liquid asset; real estate is among the least. Business liquidity is assessed through the current ratio and quick ratio. High liquidity means you can meet obligations quickly; too much liquidity may mean cash is sitting idle instead of earning returns.
Example
A business with $50,000 in cash and $30,000 in receivables is highly liquid, while a competitor with $80,000 tied up in specialized equipment and only $5,000 cash faces liquidity risk.
Why It Matters for Your Business
Liquidity determines whether you can handle unexpected expenses or opportunities without resorting to expensive emergency borrowing.
Related Terms
More Cash-flow Terms
Burn Rate
The rate at which a company spends cash monthly.
Cash Flow
The movement of money in and out of a business.
Cash Flow Forecast
A projection of expected cash inflows and outflows.
Cash Flow Statement
A financial statement showing cash movements from operations, investing, and financing.
Free Cash Flow
Cash from operations minus capital expenditures.
Related Financial Guides & Resources
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