Definition: Liquidity is the degree a corporation or debtor is able to pay its debts as and when they fall due.
It is the ability of a firm to pay its SHORT-term obligations.
Liquidity logically compliments solvency, which is the ability of a corporation to meet its LONG-term obligations.
To analyze liquidity, financial ratios are used such as:
- Current Ratio: total current assets / total current liabilities
- Quick Ratio: ( total current assets - inventories - prepayments ) / total current liabilities
- Cash Ratio: ( cash and cash equivalents ) / current liabilities
MBA Brief offers accurate and concise definitions of MBA concepts, frameworks, methods and models.
We love to keep things really short, but provide links to learn more about your subject and to similar concepts.
© 2021 MBA Brief - Last updated: 14-4-2021 - Privacy | Terms