Liquidity in accounting is an important financial concept. It refers to a company’s ability to generate cash quickly and pay off short-term debts without relying on external financing. A business’s liquidity is often indicated by its current ratio, or the amount of assets it holds compared to its liabilities. Companies with high liquidity ratios are considered to be well-positioned to meet their financial obligations. Businesses with low liquidity ratios may struggle to make payments when due and require support from outside sources. Keeping an eye on a company’s liquidity is essential for any investor or creditor looking to assess a company’s overall financial health.