Liquidity, Explained

QCan you explain the financial term “liquidity”? — V.R., Biloxi, Mississippi

AFor individuals, liquidity refers to how easily we can get our hands on needed funds. Cash is very liquid, whereas real estate, which can take weeks to sell, is not. For companies, liquidity often refers to cash and assets that can be quickly converted into cash (such as money market funds and stock and bond investments), minus short-term debt. Companies with high liquidity can be less risky, but they might also grow more slowly, as they’re not deploying assets that could be used to grow the business. Liquidity is also used to describe a stock’s ability to handle lots of buy-and-sell orders with minimal volatility. If major investors such as mutual fund managers want to buy a million shares of a stock, they don’t want their purchases to start driving up the price before they finish buying. For example, imagine Buzzy’s Broccoli Beer (ticker: BRRRP) has 10 million shares outstanding at $9 per share. That means there’s only $90 million worth of shares that investors in the market can buy or sell. If much of that is owned by company insiders, then even fewer shares are available. Compared to many companies that trade more than $1 billion worth of shares per day, it’s small, probably volatile and definitely illiquid.

QWhere can I look up the rate of home-value appreciation in a region? — K.W., Greensburg, Pennsylvania

AAt Zillow.com/home-values, you can look up home-price growth rates for the nation, each state and many metropolitan regions. Realtor.com is another source, offering overviews of many major counties and cities. You can get lots of information from good real estate agents, too. Want more information about stocks? Send us an email to foolnews@fool.com.