Liquidity of an individual or entity is defined as the ability to meet short term obligations such as payment for interest, salaries, creditors, bills and other short term liabilities.
A company which faces difficulty in meeting is short term obligations has a low liquidity and if the level of liquidity falls significantly there is a danger that the company will go bankrupt. The liquidity of a company is a characteristic which is equally important to all stakeholders such as investors, suppliers, customers, banks and government. The liquidity of a company is the first signal of its performance and can be simply calculated by using the data for current assets and liabilities of a company (Walther, 2008).
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