How easily assets can be converted to cash to meet short-term obligations.
For example, a business with strong liquidity has $95,000 in cash and $60,000 in receivables due within 30 days, enabling it to pay its $45,000 monthly operating expenses without drawing on its line of credit — even if a major client delays payment by two weeks.
Why it matters: It is survival; a business can survive years of unprofitability if it has liquidity, but it will die in weeks without it.
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