Question

What is liquidity and why is liquidity important to the success of a business?

Answer 1

Liquidity in a business means the ability of the company to pay off its current liabilities(short term obligations) using current assets. Current assets includes cash, money market instruments, accounts recievables and inventory, basically assets that can be converted into cash quickly.

It is important to the success of a business as a company needs to have reasonable liquidity to meet its current liabilities(includes suppliers, accounts payable, short term loans) so that day to day operations of the company are not hampered