liquidity

Definition:
Ability to produce cash; especially a company's ability to produce cash or its equivalent to pay its financial obligations (debts). Such ability may be identified through two balance-sheet ratios namely current ratio and liquid ratio. Current ratio is the ratio of the total value of the current assets of a company to its total current liabilities. Liquid ratio is the ratio of current assets minus stocks to current liabilities. The liquid ratio is a safer yardstick of a company's liquidity than the current ratio because it does not involve reliance on stocks which at the critical time may not be readily saleable.

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