Liquid capital

Liquid capital is like money that a person or a company can easily use to buy things. It's called "liquid" because it's like water – it's easy to use and move around.

Let's pretend you have a piggy bank in your room, and you put all the money you receive into it. Now, suppose you want to buy a toy from the store. Your piggy bank is your liquid capital because you can simply take some money out of it, go to the store, and exchange it for the toy. You can do this quickly and without any problems because the money is easily accessible and can be turned into something you want to have.

On the other hand, if you try to buy a toy with a big heavy suitcase full of coins, it would be very hard. The store probably wouldn't accept all those coins, and it would take a long time to count and exchange them for the toy. That suitcase full of coins is not very liquid capital because it's not easy to use and move around.

In the same way, companies also have liquid capital. They need it to buy things like materials, equipment, or pay their employees. Now imagine a company that has a bank account with a lot of money in it. This money is the company's liquid capital because it's readily available, and the company can use it quickly to buy what it needs.

But sometimes, companies may not have enough liquid capital, and that can cause problems. Just like you might not have enough money in your piggy bank to buy a toy, companies might not have enough money to cover their expenses. This can make it difficult for them to operate and grow.

So, having liquid capital is important because it allows you to buy things easily, just like water flows and fills up the gaps. It helps individuals and businesses to have the money they need to pay for things quickly and without any trouble.