Liquidity measures a company's ability to pay its short-term liabilities with available liquid funds. Liquid assets are the assets that the company has in the form of money and that can be used directly for payment, for example cash and bank balances.
The more liquid funds the company has, the better equipped it is to handle short-term payment challenges. Good liquidity means that the company has the opportunity to pay its debts on time and avoid delays and delayed payments. It is therefore important for companies to have sufficient liquid funds to meet their payment obligations.