PLEASE NOTE: the following is an excerpt from "20 Competitive Metrics Every Business Needs to Know," which is now available as a free download here.
Performance Metric: LIQUIDITY
Definition: A MEASUREMENT OF A COMPANY'S ABILITY TO SATISFY ITS SHORT-TERM OBLIGATIONS AS AND WHEN THEY FALL DUE
Importance: From a practical standpoint, liquidity matters because a company that doesn't have enough money on hand to make payroll, cut checks to suppliers and keep its lights on can't stay in business very long. More importantly, because it's so critical to a company's on-going success, it also serves as an indirect measure of management's core competency — if a CEO or CFO can't adequately plan for the inevitable ups and downs, what else is he or she missing?