Liquidity Risk Analysis

Liquidity risk analysis is the process of assessing a company's ability to meet its short-term financial obligations, like bills and loans, without facing significant losses. It examines how easily assets, such as stocks or real estate, can be sold for cash if needed. High liquidity means the company can quickly access cash without drastically lowering asset prices. Conversely, low liquidity may lead to struggles in covering expenses, especially during emergencies. Understanding liquidity risk helps stakeholders gauge the financial health of an organization and its capacity to navigate unexpected financial challenges.