Liquidity leads to profitability am i right ? why?

Question

Liquidity leads to profitability am i right ? why?

Answer 1

In what context?

Answer 2

In trading, liquidity means better pricing: more buyers and sellers and a tighter bid/ask spread.

Profitability is based on the skill of the trader.

Answer 3

Liquidity is generally an issue with respect to a company's Financing cash flows, not Operating.  So in general, no, liquidity does not lead to profitability.

However, i can think of several ways in which liquidity leads to profitability.  If a company's balance sheet is viewed as highly liquid by a lender, then the company's borrowing costs decrease, resulting in lower interest expense, and therefore higher profits.

you should be more specific with your question though.  Traders rely on liquidity to sell shares, and really anyone with a large block of shares to unload needs liquidity to not suffer from blockage, which is when you have so many shares to sell, that it exceeds average daily or weekly trading volume, thus pushing the price down when you start selling.  you can hedge against blockage using derivatives, but this would bite into your trading costs.   so there's another example where liquidity affects profitability.

i don't know exactly what your purpose for asking is, but liquidity is always a good thing.  especially in times of crisis, when a lack of lquidity can quickly lead to a company's demise.