The ability of the business to generate enough cash to pay bills without disrupting operations is known as which concept?

The ability of the business to generate enough cash to pay bills without disrupting operations is known as which concept?

• A. Liquidity
• B. Solvency
• C. Profitability
• D. Efficiency

Answer: (A)

Liquidity is the ability of the business to generate enough cash to pay bills without disrupting operations. It focuses on short-term cash flow and working capital—having enough cash or assets that can quickly become cash to cover near-term obligations. Keeping adequate liquidity means the company can meet day-to-day expenses on time, without needing emergency financing or selling long-term assets. This differs from solvency (long-term ability to meet obligations), profitability (earning surplus over costs), and efficiency (how well resources are used).

Liquidity is the ability of the business to generate enough cash to pay bills without disrupting operations. It focuses on short-term cash flow and working capital—having enough cash or assets that can quickly become cash to cover near-term obligations. Keeping adequate liquidity means the company can meet day-to-day expenses on time, without needing emergency financing or selling long-term assets. This differs from solvency (long-term ability to meet obligations), profitability (earning surplus over costs), and efficiency (how well resources are used).