In a business context, liquidity refers to how easily assets (like trucks) can be converted into cash without affecting their market price. High liquidity indicates that a company can quickly meet its short-term obligations and financial emergencies.

Alex operates a trucking company with a fleet of five trucks. He maintains a robust cash reserve specifically allocated to cover the variable operational costs associated with trucking, such as fuel, maintenance, and unexpected repairs. This cash reserve ensures that his business can smoothly navigate short-term financial obligations without hiccups.

In addition to his cash reserves, Alex’s trucks are an asset to his liquidity. They are well-maintained and possess high market value, allowing for quick and profitable sale (liquidation) if the need arises. This combination of liquid assets and effective cash flow management solidifies the financial health and resilience of Alex’s trucking operations.