Liquidity refers to how quickly and easily an asset can be converted into cash without significantly affecting its price. Liquid assets are valuable to a firm because they provide the flexibility to meet short-term obligations or to take advantage of investment opportunities quickly, even though they tend to offer lower returns compared to less liquid, longer-term investments.

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Liquidity Is

Question 276

Multiple Choice

Liquidity is:

A) A measure of the use of debt in a firm's capital structure.
B) Equal to current assets minus current liabilities.
C) Equal to the market value of a firm's total assets minus its current liabilities.
D) Valuable to a firm even though liquid assets tend to be less profitable to own.
E) Generally associated with intangible assets.

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