In order for production and other activities to be continuous, each enterprise must be solvent and liquid. As you know, liquidity means the ability of a property to transform into a monetary form. However, in the context under consideration, the liquidity of an enterprise means its ability to timely and fully settle its obligations. Obviously, the most interesting is the ability of the company to repay its most urgent debts. It is equally obvious that for this the organization must have enough liquid assets. This adequacy is assessed using a special group of indicators - liquidity ratios. These include the critical liquidity ratio, total and absolute liquidity.
The most common indicator just bears a characteristic name - the general indicator of coverage. It characterizes the sufficiency of the liquid assets of the company to cover its most urgent obligations. Like all liquidity indicators, this ratio is calculated as a ratio. To calculate the ratio, it is necessary to divide the current assets of the company by the value of its short-term liabilities. It is worth noting that the normative values are set for liquidity indicators, in particular, this ratio should be more than 1, but less than 2. The lower limit determines the sufficiency of the property to cover debts, and the upper limit - the efficiency of use of this property. A more than twofold excess of the total value of current assets over fixed-term liabilities indicates the inefficiency of their use. If we exclude from the calculation the amount of formed reserves, then we can determine the coefficient of critical (quick) liquidity.
The meaning of the exclusion of reserves is that, on the one hand, they are the least liquid component of current assets, and on the other hand, they often allow only less than half of the value to be realized during implementation. Thus, the critical liquidity ratio shows the sufficiency of liquid assets of the enterprise to cover debts in case of collection of the entire amount of receivables. From the features of the calculation, it becomes clear that this coefficient cannot be higher than that considered earlier, and its lower border is also set at level 1 and makes a liquidity requirement. When calculating this ratio, some adjustment may be required, which will only allow for liquid assets. The fact is that part of the excluded reserves may be more liquid than the receivables or financial investments included in the calculation. Mostly this applies to that part of the finished product, which is sold on a prepayment basis. The cost of this part of the stock should be included in the calculation. As for the amounts of doubtful accounts receivable, it must be excluded from the calculation so as not to overestimate the ratio. In addition, illiquid financial investments should not be taken into account in the calculation. The critical liquidity ratio determined in this way will be much more accurate and close to the real situation.
If, in the numerator of the indicator, only absolutely liquid property is left, that is, money and property that is recognized as their equivalents, then the result will be the value of the absolute liquidity indicator. It describes the share of obligations that can be repaid instantly.
These ratios must be analyzed. The easiest way to study their change in dynamics, identifying trends. For example, if the critical liquidity ratio for a certain period decreased from 1.5 to 0.9, then this clearly allows us to judge the deterioration of the financial condition of the enterprise. Requires management decisions aimed at normalizing the situation.