Definition:
Liquidity has to do with cash. The more cash a business has on its balance sheet, the more liquid the business. Liquidity is also defined as is the ability of a business to turn its assets into cash.
Liquid assets are those assets which can be turned into cash quickly with little or no loss of value. Accounts receivable and bank deposits such as certificates of deposit are examples of very liquid assets.
Liquidity is sometimes confused with the concept of "solvency." but the two concepts are not the same.
