Liquidity

What is Liquidity?

The ability of a business to pay its short-term debts as they fall due, using cash or assets that can quickly be turned into cash. A business can be profitable over a trading period and still fail through poor liquidity if money owed to it arrives later than the payments it must make.

This definition is part of the Understanding Business Activity chapter in Cambridge O Level Business Studies.

Concepts related to Liquidity

• cash flow
• overtrading
• trade credit