The liquidity of a firm is primarily assessed through the balance sheet and the cash flow statement. The balance sheet provides insights into the firm’s current assets and current liabilities, allowing for the calculation of key liquidity ratiOS like the current ratio and quick ratio. The cash flow statement complements this by showing the cash inflows and outflows, indicating how well the firm can meet its short-term obligations. Together, these statements give a comprehensive view of the firm's liquidity position.
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