Market liquidity refers to the extent to which a market, such as a country’s stock market or a city’s real estate market, allows assets to be bought and sold at stable prices. Accounting liquidity forex définition the ease with which an individual or company can meet their financial obligations with the liquid assets available to them. There are several ratios that express accounting liquidity highlighted below.
Cash is considered the standard for liquidity, because it can most quickly and easily be converted into other assets. 1,000 refrigerator, cash is the asset that can most easily be used to obtain it. In the example above, the market for refrigerators in exchange for rare books is so illiquid that, for all intents and purposes, it does not exist. The stock market, on the other hand, is characterized by higher market liquidity. For an entity such as a person or a company, accounting liquidity is a measure of ability to pay off debts as they come due. The current ratio is the simplest and least strict ratio.
The acid-test or quick ratio is slightly more strict. The cash ratio is the most exacting of the liquidity ratios, excluding accounts receivable, as well as inventories and other current assets. More than the current ratio or acid-test ratio, it assess an entity’s ability to stay solvent in the case of an emergency. Even highly profitable companies can run into trouble if they do not have the liquidity to react to unforeseen events. For more, see “Liquidity Measurement Ratios. The offers that appear in this table are from partnerships from which Investopedia receives compensation.