Liquidity is the ease with which an asset can be converted into cash quickly without a significant loss in value, and, for a person or company, the ability to meet obligations as they come due.
Cash is the most liquid asset. Publicly traded securities are usually highly liquid, while real estate, equipment, inventory, and private company stakes are comparatively illiquid: selling them quickly often means accepting a lower price. Liquidity therefore involves a trade-off between the speed of a sale and the price obtained.
For a business, liquidity describes whether it holds enough cash, or assets that can readily become cash, to pay suppliers, payroll, and debt service on time. It is distinct from solvency, which asks whether total assets exceed total liabilities; a company can be solvent on paper yet fail because it runs out of cash when payments come due. Lenders and analysts gauge liquidity with measures such as the current ratio and the quick ratio.
A clip from Schitt's Creek gives an intuitive understanding of the impact of needing to increase liquidity.