Liquidity

Definition: 

Liquidity characterises company’s ability to clear its current liabilities at any time.

Analysing liquidity in company’s balance sheet, positions of current assets grouped by liquidity level (speed) are compared with current liabilities. The key task of liquidity analysis is evaluation of company’s solvency. For this purpose total liquidity and absolute liquidity ratios are used. The difference lies only in the structure of current assets, which can be directed for clearing current liabilities.