business

does low liquidity mean low cash flow ?

does low liquidity mean low cash flow ?

Liquidity means the amount of liquid/current assets a business have. Including cash in bank, inventory and debtors.
Cash flow refers the ability of a business to finance its regular fixed expenses in order to stay in operation. Sometimes a business gets into trouble if it does not have enough cash to pay wages and rents especially. The cash should come from sales, otherwise the business needs additional capital from outside.

rhank you!

Welcome, Just to add.. When a business has high liquidity, it means that it can meet its short term liability eg. trade creditors and any debt below 1 year maximum. Low liquidity means its liquid assets are lower than its short term liability. But regular fixed expenses is not based on short-term liability but may have some of the expenses derived from its total liability (short and long term), eg. monthly interest expenses payment from loans. As long as it can meet its regular fixed expenses and some extra for variable expenses (eg. raw materials), then the business is not low on cashflow if ut can control its regular fixed expenses. Even if it has low liquidity. Hope that is clearer. lol