#Liquidity101 What Is Liquidity?

Liquidity refers to how quickly and easily an asset can be converted into cash without significantly impacting its market value. It's a key financial concept that enables individuals and businesses to meet short-term obligations, respond to emergencies, invest wisely, and avoid insolvency.

Why Is Liquidity Important?

Strong liquidity ensures financial flexibility and stability. It allows organizations and individuals to:

Pay off short-term debts

Seize investment opportunities

Handle unexpected expenses

Prevent financial distress or insolvency

Types of Liquidity

Market Liquidity: The ease with which assets can be bought or sold in a market without causing drastic price changes.

Accounting Liquidity: A company’s ability to cover short-term liabilities using liquid assets.

Financial Liquidity: The general ability to quickly convert assets into cash