Sample Essay

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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