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What is liquidity in financial terms? Why is maintaining liquidity so important to a company?

What is liquidity in financial terms? Why is maintaining liquidity so important to a company?

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Answer: Liquidity refers to which an asset, or security, can be converted into ready cash without affecting it's market price. Cash is universally considered the most liquid asset because it can most quickly and easily be converted into other assets.

If a company want to borrow money, liquidity is very important for a business. The liquidity ratio business will tell the potential investors and creditors of the company stable and strong and also has enough assets to combat any tough times.

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