Liquidity depends to a large extent on prospective cash flows and to a lesser extent on the level of cash and cash equivalents.

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Liquidity refers to the ability of a company to meet its current obligations. While having cash and cash equivalents on hand can contribute to liquidity, it ultimately depends on the cash flows that the company expects to receive in the near future. Companies with strong expected incoming cash flows are generally considered more liquid than those with weak or uncertain cash flows, even if they have a high level of cash and cash equivalents in the bank.

Liquidity Depends to a Large Extent on Prospective Cash Flows