What is the liquidity of an enterprise and its types?

The concept of liquidity is so popular among modern terms that financial analytics of modern enterprises cannot do without it. The basis of the definition of this indicator is a comparison of current assets and liabilities of the company. Liquidity - a measure of the company's ability to pay its debts in case of difficulties.

The concept

In the scientific literature, liquidity is understood as the ability and ability to quickly transfer assets into monetary terms. In simple terms, how quickly you can sell the property at your disposal to receive cash for it.

Moreover, the concept of assets can include everything that has a market value, which is on the balance sheet of the enterprise. Among such objects are represented: deposits, stocks, bonds, real estate, goods, etc.

The liquidity of an enterprise is the time period during which it is possible to sell an asset at the current price on the market. With a reduction in this interval, liquidity is growing.

Generally accepted classification

In accordance with the factor of how quickly it will be possible to sell (sell) an object and turn it into cash, it is possible to divide these indicators:

• highly liquid;
• with average liquidity;
• with low liquidity.

Assets with high liquidity include: stocks, bank deposits, deposits and bonds. For example, shares of Sberbank, Gazprom can be sold instantly at a good market price. The same is with bank deposits and deposits.

Assets with low liquidity include real estate. This is due to the fact that their implementation takes much longer: from several weeks to months and even years. You can sell quickly, but at a significantly reduced price that does not match the market. Among such assets, finished goods and those that are still being manufactured are also distinguished. This category also includes business as an object of sale.

Liquidity may also vary within the same category. Take an example of stocks. They are different from each other. Stocks such as blue chips have real constant demand in the market. Differences in the purchase and sale prices represent hundredths of a percent. This situation is characterized by high liquidity. Shares of the "second tier" have less demand, and the difference in prices is much higher. This means that you can sell them at a lower price, or with a certain waiting period in time. Otherwise, the market value cannot be obtained.

Trash stocks also have low liquidity. To sell them, you need to make a substantial discount of 20-30% or wait a few weeks (months).

Real estate as an object of liquidity

Real estate has always been a low-liquid category. But inside it can be divided into groups. For example, elite, expensive homes, sold at high cost, for which you need to spend a lot of time, are low-liquid real estate.

An example of economy housing with a lower adequate price is a reverse example of a more highly liquid real estate. This is due to the fact that such housing can be easily and quickly sold in a short time.

Liquidity value

The concept of liquidity is very important for investors whose main goal is to profit from invested funds. In a situation of negative factors in the market, they should have options for getting rid of "excess" assets at a reasonable price. And the investor can transfer the received money to another more profitable asset.

It is for this reason, when an investor invests finances, he tries to evaluate the liquidity of investment objects.

Let's give an example with the real estate market. With stagnation in this segment, inexpensive objects can be disposed of easier and faster. This is highly liquid housing.

Typology of liquidity

Liquidity can also be grouped as follows:

• current liquidity of the enterprise (short-term): means whether the company is able to cover its current debts with the help of high liquidity assets, that is, with the help of cash and receivables;
• fast: means the company's ability to close its liabilities and debts at the expense of high liquidity assets, goods and materials;
• instant (absolute): means whether the company can close debts on daily debt with available cash.

Liquidity categories

The following liquidity categories are also distinguished, depending on the scope:

• liquidity of goods (products) implies whether a particular product is capable of being sold at market prices for short periods of time;
• the liquidity of the balance sheet of the enterprise means how quickly the assets of the company can pay off its obligations and debts;
• banking liquidity means the ability of a credit institution to pay off its debts;
• liquidity of an enterprise’s funds is an opportunity to close its debts to creditors;
• market liquidity means a reduction in market losses due to price changes;
• monetary liquidity means the ability of a particular state to close its debts in the international market;
• the financial liquidity of an enterprise and its securities means their ability to be sold at market prices.

Liquidity at the enterprise

The company's goal in the market is efficiency and solvency. The last indicator is a consequence of the liquidity of the company.

The liquidity of the balance sheet of the enterprise characterizes the possibility of overlapping the company's debts with existing assets by maturity. To determine the stability of the company, you need to understand how much the sum of current assets of the company is greater than its liabilities in the short term. The larger the gap between the indicators, the more stable the company.

To assess the liquidity of the company in the balance sheet of the company we distinguish the following groups, presented in the table

For each group, it is necessary to calculate the values ​​and compare them with each other. The absolute option of the “correct” liquidity is as follows:

A1> P1, A2> P2, A3> P3, A4 <P4.

Calculation Example

Let’s take an example of the calculation for the conditional company OOO Rost.

Comparative balance sheet of LLC Rost.

Calculation of liquidity groups according to the balance sheet of LLC “Rost”

Next, we carry out a comparison between groups of indicators.

Comparison of assets and liabilities of LLC “Rost”

The calculated data allow us to conclude that the liquidity conditions were not met in all cases of Rost LLC in 2016-2017. Failure to comply with at least one condition negatively characterizes the liquidity of the company. We can talk about the absolute liquidity of Rost LLC in 2015, and the company's illiquidity in 2016-2017.

Key liquidity ratios

Assessment of a firm's liquidity is not limited to comparing balance sheet groups. It is also necessary to calculate the liquidity ratios of the enterprise.

There is also an indicator of total liquidity. Otherwise, it is called the current ratio of the enterprise. It is determined by the ratio of current (current) assets to current liabilities (short-term liabilities). Calculation formula:

Ctl = OA / KO,

where Ktl - current liquidity ratio, OA - the amount of current assets, thousand rubles.,

KO - the amount of short-term liabilities, thousand rubles

This ratio means how capable the company is to pay off its debts using current assets. Naturally, the growth rate is positive. The higher it is, the higher is liquidity.

The standard for this indicator is 2 and higher for the conditions of our country. In foreign works, it is set at a level of from 1.5 to 2.5. If the value is below 1, then the financial risk of the company is very high, the company can not pay its bills. If the indicator is above 3, then the capital structure is considered as irrational.

Quick ratio is also called intermediate or urgent. The formula is:

Kbl = (KDZ + FV + DS) / THAT,

where KDZ - short-term receivables, thousand rubles., FI - financial investments, thousand rubles., DS - cash, thousand rubles., TO - current liabilities, thousand rubles.

It shows the company's ability to pay off its current account obligations in case of problems with the sale of products and goods.

The standard is more than 1.

Absolute liquidity ratio is defined as the ratio of cash finance to current liabilities. The formula is:

Cal = (DS + PV) / TO

This coefficient is rarely used in foreign practices, mainly with us. The norm of the indicator is a value of at least 0.2.

The above indicators of the liquidity of the company will calculate the example of the company "Growth"

Calculation Example

We will use all the same balance data presented above.

Calculation of the current ratio of the enterprise

The value of the coefficient in all periods does not exceed the required standard 2, which means that OOO Rost can be considered illiquid and unable to repay current liabilities with current assets.

You should pay attention to the negative trend of reducing the coefficient from 1.8 to 1.7. Management needs to take a number of measures to strengthen the solvency of the company.

Calculation of quick ratio

This ratio complies with the standard in each period (more than 1), which means that OOO Rost is also characterized by positive liquidity. In the event of problems with the sales of LLC Rost, the company will be able to repay its obligations.

Attention should be paid to the negative trend of decreasing the coefficient from 5.41 to 2.93. Management needs to take a number of measures to strengthen the solvency of the company.

Absolute liquidity calculation

The ratio exceeds the norm in each period. OOO Rost is characterized by positive liquidity. You should pay attention to the negative trend of reducing the ratio from 4.69 to 1. Management needs to take a number of measures to strengthen the solvency of the company.

Conclusion

The concept of liquidity is the most important indicator for business owners and investors. Owners consider this concept as a coefficient of the normal ratio of cash and liabilities of the enterprise, and the investor as an opportunity to optimize their investments.