#Liquidity101

Liquidity 101

Liquidity refers to how easily an asset can be converted into cash without affecting its market price. Cash is the most liquid asset, while real estate or collectibles are less liquid due to the time and effort needed to sell them. In financial markets, high liquidity means assets can be quickly bought or sold, which reduces risk and improves market efficiency. For businesses, liquidity is crucial to meet short-term obligations and avoid insolvency. Key liquidity ratios like the current ratio and quick ratio help assess a company’s financial health. Overall, strong liquidity ensures flexibility and stability in both investing and operations.