#Liquidity101

What is meant by financial liquidity?

Financial liquidity refers to the availability of cash for a company or individual, or the ease and speed of converting financial assets into cash available for immediate use, without incurring significant losses in value; that is, the level of financial liquidity is determined by the amount of cash currently available, in addition to financial assets that can be easily converted into cash within a short period.

Financial assets are things of financial value that can be easily traded, such as: cash, stocks, bonds, and bank deposits, and although these assets are not considered to have material value in themselves, like land and buildings, their value depends on the level of demand for them in the market; for example, the value of stocks may rise or fall significantly depending on market conditions.

Financial liquidity is extremely important; it reflects the ability of a company or individual to meet their financial obligations and sudden costs with ease; the higher the level of financial liquidity, the greater the flexibility in facing obligations and unexpected expenses, therefore companies and individuals strive to maintain appropriate levels of financial liquidity; so that they can effectively meet their due obligations and sudden costs, which enhances their financial stability and protects them from potential risks.