Liquidity
QUICK ANSWER
Liquidity refers to how easily and quickly an asset can be converted into cash without significantly affecting its market value. In a broader business context, it describes a company's ability to meet its short-term financial obligations using its most readily available resources. A business that can comfortably cover its near-term liabilities is considered liquid; one that struggles to do so faces liquidity risk.
In depth
Assets exist on a spectrum of liquidity. Cash is the most liquid asset by definition. Marketable securities such as Treasury bills and money market instruments are highly liquid because they can be sold quickly with minimal price impact. Accounts receivable are moderately liquid, depending on collection timelines. Inventory is less liquid because it must first be sold before it generates cash. Fixed assets like property and equipment are the least liquid, as selling them takes time and may require price concessions. Understanding where a company's assets sit on this spectrum is essential for assessing its ability to weather short-term financial stress.