Liquidity is the ability of a company to convert its assets i.e stock, bonds, short term deposits, into cash within a short period to meet its liabilities. It is a good practice to keep a check on liquidity. A company with high liquidity gives more confidence to the investors.
Let’s take a case where ABC company is going through a tough phase in the business cycle. If the business has low liquidity, it may find it difficult to sell its assets at its true value. It is important to track liquidity to take careful management decisions.
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