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Illiquidity describes a situation where a firm does not have enough available funds to satisfy its debt obligations as they become due. An illiquid firm is unable to meet its short-term payments, even if its total assets are valuable.

Definition of Illiquidity

Based on the situation described, which financial term best describes the company's immediate problem? Explain your reasoning.

Assessing a Company's Financial State

A technology startup has developed a groundbreaking patent valued at $10 million and owns equipment worth $500,000. However, the company has only $20,000 in its bank account and is unable to make a $100,000 loan payment that is due this week. Which of the following statements accurately describes the company's financial situation?

A real estate development company owns several large, valuable properties collectively worth $50 million. However, the property market is slow, and the company has only $100,000 in cash. This month, it must make a $500,000 payment to its construction contractors. Based on this information, is the company illiquid? Explain your reasoning.

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