Diagnosing the financial condition of the enterprise is a very important stage of financial management. To identify the problems of the company, it is necessary to analyze a number of indicators to assess the current situation. The indicators of financial stability and liquidity levels, as well as profitability levels and the turnover rate of various enterprise resources are subject to calculation.
Liquidity analysis can be performed using only balance sheet indicators, which means the simplicity and accessibility of this type of analysis, even for not very experienced financial managers. To draw a conclusion about the liquidity of the balance sheet of the enterprise is possible after drawing up a balance of liquidity. To assess the liquidity of the enterprise as a whole, it is necessary to calculate the liquidity ratios. Let us dwell on them in more detail.
The first ratio is a general indicator of liquidity. His calculation is in relation to the total size of the current assets of the company to the amount of short-term debts contained in the fifth section of the balance sheet. The general liquidity indicator shows the ability of the enterprise to pay off the most urgent debts by sending all current assets for these purposes, which, of course, are much more liquid than non-current ones. In the economic literature you may come across the names “current liquidity indicator” or “general coverage ratio”, but they mean the same thing.
For this indicator, there are values that are considered normal. The lower limit is a value of 1, which defines the liquidity requirement. In other words, current assets must be sufficient to cover short-term liabilities. If the total liquidity ratio exceeds 2 in magnitude, then this means that the company pursues a low-effective policy in the field of current assets management.
The above range of values is generally accepted, but may not correspond to the needs and characteristics of any particular enterprise. For a more correct definition of the norm, it is necessary to make the following calculation: divide the amount of the inventory ratio and the value of short-term obligations by the same amount of short-term obligations. The calculated normative general liquidity indicator takes into account the fact that when a part of current assets is directed to satisfy creditors' requirements, the enterprise will have at its disposal the necessary minimum reserves for continuing operations.
Other liquidity ratios are calculated by using only increasingly liquid assets. For example, when calculating an interim coverage indicator, stocks that are the least liquid asset are excluded from the calculation. This indicator should also be greater than unity, and from above it is obviously limited by the value of the total coverage coefficient.
The fraction numerator in the absolute liquidity ratio formula contains only the most liquid assets - short-term investments and money. He estimates the amount of urgent debts that the company can repay at the expense of the most liquid assets. In percent, this value should be in the range from 20 to 25. However, for modern Russian enterprises this level is often unattainable.
Among other things, you can calculate the amount of liquidity in the mobilization of reserves. Thus, it will be concluded that how many short-term obligations the company will repay if it sells all its stocks. It is believed that this share should be from half to 70%.
If any indicators go beyond normal limits, then the financial manager should make certain decisions that can improve the situation.