Define what liquidity means by completing the following sentence. Liquidity refers to a company's ability to pay for its liabilities.

Liquidity refers to a company's ability to pay for its liabilities as they come due, utilizing its most liquid assets or converting other assets into cash without significant loss in value. In financial terms, it reflects how quickly and easily a company can meet its short-term obligations. A company with high liquidity has sufficient cash or near-cash resources to cover its immediate liabilities, such as accounts payable, short-term loans, and other debts. This ability is essential for maintaining operations, as it ensures that the company can meet its payments and avoid insolvency. Different liquidity ratios, like the current ratio and quick ratio, are utilized to assess this aspect of a company's financial health, indicating its operational efficiency and short-term financial stability.