What is Liquidity?
Liquidity: How quickly an asset can be turned into cash without losing value.
Where Liquidity fits
Liquidity is part of Cash & Liquidity in Finance. Profit is an opinion, cash is a fact: a profitable company can still go bankrupt if cash runs out. Liquidity and working capital show whether you can pay bills on time.
Practical tip
Track cash weekly, collect invoices fast and keep the current ratio above 1.
Related terms
- Cash flow
- Money moving in and out of a business over time.
- Working capital
- Current assets minus current liabilities: money for daily operations.
- Overdraft
- Spending more than your account holds by borrowing from the bank.
Formulas you will use with it
Test yourself
Which term means: “How quickly an asset can be turned into cash without losing value.”?
Working capital · Liquidity · Cash flow
Answer: Liquidity
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