ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Liquidity is a company’s ability to convert assets to cash or acquire cash-through a loan or money in the bank-to pay its short-term obligations or liabilities.

Detailed explanation-2: -Liquid assets refer to cash on hand, cash on bank deposit, and assets that can be quickly and easily converted to cash. The common liquid assets are stock, bonds, certificates of deposit, or shares.

Detailed explanation-3: -Primary measures of liquidity are net working capital and the current ratio, quick ratio, and the cash ratio. By contrast, solvency ratios measure the ability of a company to continue as a going concern, by measuring the ratio of its long-term assets over long-term liabilities.

Detailed explanation-4: -The quick ratio measures a company’s ability to quickly convert liquid assets into cash to pay for its short-term financial obligations.