As mentioned earlier, liquidity is the ability of a company to pay off debt and short-term liabilities. The company’s short-term debt includes trade payables, taxes, dividends, and so forth.
Liquidity can also be interpreted as the ability of individuals or companies to pay off debt immediately by using current assets owned. Without having these capabilities, the company will not be able to carry out business operations as usual.
The level of liquidity that a company has is generally described using certain numbers. Figures that describe liquidity are commonly referred to as fast ratios, current ratios, and cash ratios.
When measuring company performance using liquidity, the higher the value, the better the performance. The reason is, when a company has a high level of liquidity, the opportunity to get support from various parties is also increasingly wide open.
Financial institutions, suppliers, to creditors certainly tend to choose companies with high liquidity to ‘save’ their …