What is speculative grade liquidity?

It’s a rating of a company’s ability to meet its financial obligations that are due over the following 12 months. Also called SGL, the appraisal is issued by credit rating agency Moody's to indicate a firm's liquidity risk and chances of default.

Where have you heard about speculative grade liquidity?

Not surprisingly, the number of companies given the weakest SGL rating hit an all-time high at the height of the recession in 2009. Plunging oil and gas prices can also lead to periodical rises in low ratings.

What you need to know about speculative grade liquidity.

To determine a rating, Moody’s looks at a business’s debt liabilities and ability to generate cash through internal, external and alternative sources.

Ratings range from SGL-1 for the most liquid companies to SGL-4 for the least liquid. A firm with a top rating of “very good” liquidity means it should be able to fund its obligations over the next year using internal resources alone, whereas a company with “weak” liquidity will most likely have to rely on external funding sources that have a "highly uncertain” outlook, Moody's says.

Find out more about speculative grade liquidity.

Read our definition of Moody’s to find out more about the credit rating agency.