What's Happening?
Liquidity is a measure of how easily an asset can be converted into cash without affecting its market price. It is crucial for both market liquidity, which pertains to buying or selling securities without significant
price changes, and accounting liquidity, which measures a company's ability to meet short-term obligations. Understanding liquidity helps investors and businesses assess financial stability and plan for future growth. Liquid assets, such as cash and marketable securities, offer high liquidity, while illiquid assets like real estate require more time to convert to cash.
Why It's Important?
Liquidity management is vital for businesses to ensure financial stability and flexibility. It allows companies to meet short-term obligations and respond to unexpected costs without resorting to emergency loans. For investors, liquidity provides the ability to manage portfolios effectively and capitalize on market opportunities. Maintaining a balance between liquid and illiquid assets is essential for achieving both short-term financial needs and long-term goals.
