Helps You Identify If
Liquidity is a means of understanding a company’s susceptibility to either current of future financial distress. It also helps build a risk profile of the business. But remember though that a single “safe” liquidity measure does not exist across all industries. Likewise, some industries traditionally and successfully trade at low liquidity levels, whereas for others, the same figure is a sign of distress. One indicator of liquidity is understanding your the amount of cash that your company has as its disposal should all revenue sources dry up. But what is my cash runway?
How do you get your runway? Your runway is the amount of cash at hand compared to your average monthly gross burn rate. The measure shows the number of months (or part months) cash available to your business before you go cash negative.