Liquidity

Last updated: 2021-06-21

For companies, the concept of liquidity is used to describe the short-term ability to pay.

The assets that can be immediately converted into money are called liquid assets. In practice, this means cash and money that is in the company’s accounts and that can be withdrawn. Examples of assets that are not classified as liquid assets are, on the other hand, shares, inventories and funds.

Since low liquidity can mean that the company has difficulties paying its invoices, liquidity is an important key figure. To cover short-term liabilities, cash liquidity should be at 100%, which means that current assets excluding inventory must be as large as the short-term liabilities. Another measure of liquidity is balance sheet liquidity, which measures the ratio between all current assets and short-term liabilities.