Definition of Liquidity
Liquidity usually refers to a company's ability to pay its bills when they become due. Liquidity is often evaluated by comparing a company's current assets to its current liabilities.
The following are often referred to as liquidity ratios or short-term solvency ratios since they assist in evaluating a company's ability to pay its current obligations:
- Working capital
- Current ratio
- Quick ratio
- Accounts receivable turnover ratio
- Inventory turnover ratio
- Free cash flow
Definition of Liquidation
Liquidation is a term commonly used to describe a company selling parts of its business for cash, selling its assets in order to pay debts, or the process of winding down or closing a business.