Balance sheet liquidity, also known as financial liquidity, is a business’s ability to generate cash on-demand and cover its short term obligations. It is typically measured in terms of current assets divided by short-term liabilities. High balance sheet liquidity indicates that a business has sufficient assets it can quickly convert into cash to pay its bills, while low liquidity implies that more debt or equity financing will be needed to stay afloat. A company with optimal balance sheet liquidity should not only have enough current assets to meet immediate cash needs but also have sufficient ‘slack’ to handle any unforeseen spending requirements.