Liquidity
Liquidity is a multifaceted concept in finance, referring to the ability of an asset to be converted into cash quickly and the capacity of a company to meet its short-term obligations.
In the context of assets, liquidity indicates the ease and speed with which an asset can be sold in the market without affecting its price significantly. Cash is considered the most liquid asset, whereas real estate and specialized equipment are less liquid. For a company, liquidity is about having adequate resources to cover its immediate and short-term liabilities without incurring significant losses.
Liquid assets, including cash and marketable securities, ensure operational and financial stability. Companies with high liquidity are better positioned to seize opportunities or weather financial downturns. Liquidity ratios, such as the current and quick ratios, are commonly used to evaluate a company's financial health, providing insights into its ability to fulfill its obligations.
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