Liquidity
Short definition
Liquidity is the ability to meet obligations as they fall due with cash or immediately available resources. It is not profitability or solvency; it is a timing problem.
Detailed explanation
Stock liquidity (cash, drawable lines) and flow liquidity (13-week collections versus payments) are read together. Encumbered lines, trapped cash and a covenant breach can leave stock liquidity on paper only.
The current ratio is a stock cut; it misses intra-period payroll, tax and principal peaks. The CFO therefore runs liquidity off a dated cash budget and the maturity wall, not off a ratio alone.
Why it matters for the CFO
Firms fail while profitable when cash times out. Banks look at liquidity first, then at profit. Minimum cash, the facility and customer collections are three legs of one decision.
How to read it
Cash + drawable RCF − near-term mandatory outflows is the spot headroom. Cash on the balance sheet with no headroom (fully drawn, tight covenant) is not liquidity. Sector, season and the payment calendar set “enough cash”; there is no universal day-count.
Related calculators
Güven Sayılgan’s writing on this topic
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.