Liquidity

Definition: The amount of cash or investments that can be quickly converted to cash a company has.

Example: A company with millions in cash and short-term US Treasury bonds would have high liquidity.

Why It’s Important: High amounts of liquidity (i.e. positive cash flow) should be invested at returns better than what you’ll earn leaving them sitting in your checking account. A low amount of liquidity means you can’t pay your bills

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