What is Liquidity ?

Liquidity (Definition)

Liquidity refers to the ability to buy or sell a security or asset without significantly affecting its price. In other words, how easily an asset can be turned to cash. In business, it indicates a company's capacity to pay down its short-term liabilities and it is typically expressed as a ratio or percentage. The figure can provide insight into a business's financial health.

Liquidity is classified into two types: market liquidity and accounting liquidity. Market liquidity refers to the ease with which a market enables the sale and purchase of assets at stable prices. Accounting liquidity is a metric that indicates how easily a business or individual can satisfy its financial commitments using the assets at hand. Liquidity information can be seen on your company's balance sheet and the assets are presented in order of their ability to be converted into cash.