The liquidity and solvency of the company are perhaps the most important aspect that needs to be analyzed in the study of financial condition. In this regard, we will consider the basic methods of how to calculate the liquidity of an enterprise and draw a conclusion about the situation in the organization from this point of view.
As you most likely know, liquidity is a general economic category and represents the ability of a property to acquire a monetary form as quickly as possible without loss of value. However, in relation to our situation, the liquidity of an enterprise means matching in terms and volumes between its obligations and property, which can be used to pay off these obligations. The liquidity and solvency of an enterprise is determined solely by the balance sheet. This, as well as ease of calculation and significant economic sense, make the analysis of liquidity one of the most important methods of studying the financial condition.
As a rule, to assess the liquidity of an enterprise, first of all, a number of liquidity ratios are calculated . These ratios represent the ratio, to one degree or another, of liquid assets to the short-term debt of the enterprise. In this case, liquid assets are understood as fully or partially current assets of a company depending on a specific ratio. If we attribute to short-term liabilities the entire value of current assets, then we can determine the overall coverage ratio. It characterizes the sufficiency of the total amount of working capital to cover the most urgent debt. Current assets should be sufficient for this, but they should not exceed these liabilities by more than two times. If we exclude reserves from the total assets (the least liquid part of assets), then we will determine the interim coverage ratio, which should be at least one. It shows the possibility of repayment of obligations in the collection of all receivables. If we calculate the ratio solely on absolutely liquid assets, that is, money and liquid financial investments, the result will be an absolute liquidity indicator. It characterizes the share of current liabilities that can be repaid immediately. This share should be at the level of one fourth.
Another method that allows you to establish the liquidity and solvency of the enterprise, is to build a special balance of liquidity. The essence of this method is extremely simple and consists in grouping property and liabilities into the same number of liquidity and urgency groups. After the groups are formed, it is necessary to compare them in pairs. The excess of assets over liabilities will be a surplus of payments, and vice versa - a disadvantage. Absolute liquidity will be the situation when surplus is observed for all groups except those that are difficult to sell assets and permanent liabilities. As a rule, when assessing the liquidity of enterprises in the real economy, they resort to compiling four groups on each side. As for financial institutions, especially banks, in this case everything is much more complicated. The fact is that for the bank, the correspondence between liabilities and assets in terms and volumes is vitally important , therefore, there are much more groups in this case.
If one or another type of analysis revealed that the company lacks liquidity, then this may lead to an inability to repay its obligations on time and in full. Such a situation may be a harbinger of bankruptcy, so it is extremely important to make managerial decisions aimed at improving the liquidity and solvency of the enterprise.