Liquidity
Liquidity is the ability to meet obligations as they fall due and the ease of converting assets to cash. Review when customers are expected to pay, how quickly inventory can be sold and when liabilities fall due. The current and quick ratios provide starting points, while a cash forecast can show whether the business can actually meet particular payments. A business may have valuable assets but still struggle if it cannot realise them promptly.
Worked example
Cash and prompt customer collections help a business pay suppliers.
Common mistake
A strong current ratio alone does not prove cash will be available on time.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| CIMA | F1 | Direct | Official assessment-window verification pending |
| CIMA | F2 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: Short-term solvency