How easily a business can access cash or convert assets into cash to meet short-term obligations. A business with good liquidity can quickly cover its immediate expenses and debts.

Example:

•   High Liquidity: A company with £500,000 in cash and marketable securities and only £100,000 in short-term liabilities has high liquidity.

•   Low Liquidity: A company with £10,000 in cash and £50,000 in unpaid invoices but £100,000 in short-term liabilities has low liquidity.

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