#Liquidity101

What is liquidity in simple words?

AI Overview

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In simple terms, liquidity is how easily and quickly something can be converted into cash without losing much value. Think of it as how quickly you can access your money when you need it.

Elaboration:

Ease of conversion:

Liquid assets, like cash, can be used directly to make payments or cover expenses. Other assets, like stocks, can be sold relatively quickly, but the speed of conversion can vary.

Liquidity measures a business's ability to pay all its bills and make loan repayments in the coming months. It is commonly expressed as a ratio. Liquidity compares current liabilities (which are amounts owed within the coming 12 months) against current assets.

liquid asset is a type of asset that can be rapidly converted into cash while keeping its market value. There are other factors that make assets more or less liquid, including: How established the market is. How easily ownership is transferred. How long it takes for the assets to be sold (liquidated)

Financial liquidity is neither good nor bad. Instead, it is a feature of every investment one should consider before investing.