Maintaining adequate liquidity is essential for various reasons:
Operational Continuity: Liquidity allows a business to manage day-to-day operations smoothly and handle unforeseen expenses. Solvency: Adequate liquidity helps in avoiding insolvency and bankruptcy, ensuring that the company can meet its short-term liabilities. Investment Opportunities: Liquid assets enable a business to quickly capitalize on investment opportunities without needing to secure additional financing. Creditworthiness: High liquidity can enhance a company's credit rating, making it easier to obtain loans and favorable terms from lenders.