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Glossary
Balance sheet

Liquidity

Whether you can meet your bills right now.

Liquidity is about timing, not solvency. A company can be worth billions and still fail because it cannot pay a supplier on Tuesday. Assets that cannot be turned into cash quickly are no help in a liquidity crisis.

The word is also used about markets: a liquid market is one where you can sell quickly without moving the price against yourself. Illiquidity is a risk that appears from nowhere at exactly the wrong moment.

Figure

Why a solvent bank can die in 48 hours

What it owes todayDeposits, repayable on demandWhat it can collect todayCashLong loans and bondsnot due for yearsa rumourForced to sell long assets at bad prices. Paper loss becomes real.

The bank lent your deposit out. That is not a scandal, it is what a bank is. It only becomes fatal when everyone asks for their money on the same afternoon.

Why it matters

Most companies that fail are not insolvent on paper. They simply run out of cash.

The mistake everyone makes

Confusing it with solvency. A profitable company can die of a cash flow problem.

Related terms

Solvency
Whether the company can survive in the long run, given what it owes.
Current ratio
Whether a company can cover the next twelve months from short-term resources.
Quick ratio
The current ratio, but excluding inventory, which might not sell.

See Liquidity on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

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