Definition
Financial Liquidity is the ability of an organisation to meet its current financial obligations when they fall due using available cash or assets that can readily be converted into cash.
Human Explanation
It answers the question: does the organisation have the funds to pay its obligations when they become due?
Why it Matters
Even a profitable organisation may lose its ability to operate if it lacks the funds required for day-to-day activities.
Conceptual Boundary
Financial Liquidity is not the same as profitability. An organisation may make a profit while still being unable to make payments on time.
Practical Perspective
Liquidity analysis includes monitoring receipts and expenditure, planning Cash Flow and assessing the ability to finance ongoing operations.