Glossary - Liquidity
Liquidity refers to the ease with which an asset or security can be converted into ready cash without affecting its market price. The term is also used to describe the ability of a company to meet its short-term obligations using assets that are readily convertible to cash.
Also known as
- Marketability
- Fluidity
Use cases examples
- Balance Sheet: The company's balance sheet shows a high level of liquid assets, indicating strong liquidity and financial health.
- IPO Prospectus: In the IPO prospectus, the company highlights its liquidity ratio as an indicator of its ability to fund ongoing operations and facilitate growth without additional debt.
Considerations for investors
- Investors should analyze a company's liquidity to assess its financial health and the risk associated with their investment.
- The liquidity of an investment is crucial for investors needing to quickly convert holdings back to cash, either for personal cash flow needs or to reallocate assets strategically.
Considerations for founders
- Founders should consider liquidity in terms of their ability to finance the operations and growth of the company without having to raise additional capital constantly.
- Evaluating the liquidity of the company's assets can also help in planning for potential economic downturns or financial crises.
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