Cash and assets easily converted to cash are liquid assets, and liquidity is the extent to which an individual or firm can produce cash when necessary. A high degree of liquidity implies that a company isn't immediately going to fail in the event of a downturn in its business or the economy. That means increased safety for investors, but it comes at a price: cash and cash-like assets usually produce the lowest returns. Thus, a company sitting on a large pot of cash suffers reduced profitability compared to a similar company with all its assets brought to bear on its profitable business activities.



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