What might a firm do to improve its liquidity?

The choice to sell off non-essential assets is a strategic move that firms can implement to improve liquidity effectively. By converting assets that are not critical to operations into cash, the firm can bolster its cash reserves. This influx of cash enhances liquidity, allowing the company to meet short-term obligations and invest in opportunities without relying heavily on external financing.

Selling non-essential assets can involve divesting from real estate, equipment, inventory, or even securities that the firm has outgrown or no longer requires. The cash generated from such sales can help improve the company's balance sheet and provide a buffer during financial uncertainties.

In contrast, increasing long-term debt commitments can add to a company's liabilities and financial risk, potentially straining liquidity rather than improving it. Hiring additional staff typically requires upfront costs and ongoing expenditures, which could negatively impact available cash flow, especially if the firm is facing liquidity issues. Lowering pricing on products, while potentially increasing sales volume, may not translate to immediate cash flow improvements and could adversely affect profit margins. Thus, the decision to sell non-essential assets stands out as the most direct and effective means of enhancing liquidity.