Q:

What is the difference between profitability and liquidity?

A:

Liquidity refers to the assets a company has that it can quickly and easily convert to cash without losing value, and profitability is a company's ability to make a profit. Companies with high liquidity trade often and have a large number of liquid assets, those things that can be bought and sold quickly, as needed.

A company or corporation uses a profitability ratio to determine how profitable it is. The money a company has left after deducting all expenses like income and operating costs is its profitability. Liquidity, also known as "marketability," is different because it has nothing to do with a company's ability to make a profit. It simply provides the organization with a way to get cash quickly, without losing anything. Liquid assets can be stocks, government bonds or money market accounts.


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