Liquidity is an economic term that means how quickly an asset is sold at a nominal price. In other words, a product is called liquid if it is possible to quickly and easily get its full value on the market.
Liquidity (from the Latin liquidus - "liquid, flowing") - the ability of assets to quickly sell, mobility. Assets with this property include government securities, shares of large reputable companies (with a constant turnover on the stock market), precious metals, industrial equipment, real estate, construction in progress, etc. Liquidity provides enterprises with the ability to fulfill their legal monetary obligations to investors and sponsors on time. Liquidity is a variable value, the ratio between money and assets. This indicator depends on the selling price of the security / commodity. Accordingly, the higher the share of assets that can turn into real money in a short time, the higher the liquidity of the enterprise. In developed capitalist countries, timely fulfillment of obligations by commercial banks is of great importance for the economy. The legislation establishes the size of the monetary reserve funds that banks are required to keep in the central bank. The size of such a fund is determined by the percentage of the total amount of open financial accounts and time deposits in banks. Current, quick and absolute liquidity are distinguished - indicators of the financial capabilities (reliability) of the enterprise. Current liquidity shows the ratio of the company's current assets to current liabilities. In other words, to what extent the company is able to pay off current liabilities only at the expense of assets. This indicator determines the company's solvency. Fast liquidity reflects the company's ability to pay off its obligations in a difficult situation (delay in delivery or incomplete delivery of products, delay in payments, etc.). This is the ratio of current assets with high liquidity to current liabilities. Absolute liquidity is the ratio of cash to current liabilities. In calculating this indicator, real money or equivalent funds are involved. All data for calculating the three types of liquidity must be presented in the company's balance sheet. The term "liquidity" is used not only in relation to the assets themselves, but also to financial institutions, markets and even countries. For example, international liquidity is the ability of an individual state to fulfill international payment obligations (repay debts).
