Liquidity shows how the company is able to timely transfer assets to cash. In other words, liquidity is the rate at which the property of a company is sold at market value or the ability of a commodity to turn into money.
Assets are highly liquid (short-term investments of financial assets and cash), quickly sold (urgent receivables), slowly sold (receivables exceeding 12 months and other current assets), as well as difficult to sell (non-current). The category of assets is determined depending on the factor that shows how quickly and easily the full value of the property can be obtained.
Determining the liquidity of an enterprise involves the use of such a concept as a liquidity ratio. In the calculation, a number of such coefficients are used. liquidity ratios show how quickly the company is able to sell a certain part of the property in order to repay short-term debt.
The liquidity ratio (current) can be calculated as the ratio of current current assets to current liabilities. Current working assets should be understood as the amount of current assets if we subtract from it long-term receivables, that is, those for which payments will become an urgent need no earlier than after 1 year. This liquidity ratio shows the company's ability to repay its own short-term liabilities if current assets are realized . The current ratio should equal or exceed the normative value 2.
The quick liquidity ratio determines the ratio of highly liquid assets to short-term obligations undertaken by the enterprise. In this case, highly liquid assets should be understood as cash held at the cash desk of the enterprise, as well as in a bank account or short-term investments of financial resources. This also includes urgent receivables. This ratio should be equal to or exceed the normative value 1. This liquidity ratio makes it possible to understand the company's capabilities in terms of calculating short-term debts in case of difficulties in the sale of finished products. The calculation of liquidity ratios is the primary task for understanding the situation at the enterprise.
Another liquidity ratio is the absolute ratio. It is calculated as the ratio of cash to short-term financial investments and short-term liabilities. The norm for this coefficient is 0.2. coefficient It indicates the capabilities of the enterprise in the aspect of calculating current liabilities, without the use of product sales and collection of receivables. The above ratios provide an opportunity to conclude how liquid the company is. In the event that the ratios are characterized by indicators that are much lower than the normative, this indicates that the company is not able to timely pay for its current liabilities, which means that it is characterized by great financial risk for creditors. If the values of the coefficients significantly exceed the normative indicators, capital is irrationally distributed to enterprises.
Thus, each liquidity ratio should be calculated accordingly and meet regulatory indicators - in this case, the company operates in a balanced manner, is able to repay its obligations to creditors and does not threaten bankruptcy. Otherwise, urgent measures must be taken to stabilize the situation.