Liquidity
What does it mean
Liquidity is a broad term used to described the amount of readily convertible to cash or assets that can be easily converted to cash. Liquidity is typically expressed through ratios and/or calculations. Some common examples would be:
Why does it matter
Liquidity matters to a business for two primary reasons. It gives the business the ability to respond quickly to opportunities. Whether those opportunities are favorable pricing on a primary input or jumping on a new product category, having excess cash around to be able to act quickly is awesome. Another reason that liquidity is important is because not all times will be great times. Liquidity gives a business a rainy day fund to fall back on during a month or season of operational losses. Liquidity allows the business to stay in the game, and to reach the next season of prosperity.
Additionally, as a banker we are concerned with receiving timely payments on our loans. A business with higher liquidity is able to meet these timely payments because they are less dependent on collecting the “big receivable” in order to get enough cash to pay the payment.
Other Relevant Terms
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Greetings! I'm Clay Sharkey, and there is nothing I like more than assisting others in achieving their goals. I firmly believe that by enhancing a banker's understanding of their customer's' business, they can provide superior service. This superior service, in turn, leads to stronger relationships for the bank, improved performance for the businesses, and better experiences for our communities. Win-win-win.
