Any commercial company wishes to continue its activities as long as possible. This means that the financial situation of the enterprise must be stable to a certain extent. And to make a conclusion about the financial situation, it is necessary to conduct some analytical procedures. One of the most important among them, but at the same time very simple, is the assessment of balance sheet liquidity.
The goal of every enterprise is absolute liquidity. To determine whether the balance sheet of the enterprise meets this requirement, you can by compiling a balance of liquidity. This is the most common analysis method both in Russia and in other countries. Its meaning is to compare assets grouped by liquidity with liabilities grouped by maturity. Each financial manager can form groups based on the objectives of the study or the characteristics of the enterprise, but we will consider the most traditional option, implying the division of assets and liabilities into 4 groups.
Absolute liquidity is a criterion for attributing an asset to the first group. Cash possesses absolute liquidity, and short-term financial investments are equated to them . It is advisable to identify only those KFV, whose doubts about liquidity are not.
The second group of assets is formed by quick-selling ones. They traditionally include short-term receivables, suggesting that it quickly transforms into cash. In addition to it, other current assets are also included here.
Less liquid assets are called slow-moving, they form a third group. Obviously, this requires the stocks of the enterprise, as well as long-term financial investments (with the exception of deposits in the capital of other organizations).
And finally, the least liquid assets are represented by fixed assets, other non-current assets, as well as long-term receivables.
Similarly, we group the liabilities of the enterprise, ranking groups in order of decreasing urgency. Thus, the first group will contain the most urgent liabilities, which consist of accounts payable and other short-term debts.
The second group consists of all other short-term liabilities that were not assigned to the first group.
Long-term liabilities in full form the third group of liabilities, that is, here you can simply record the result of section 4 of the balance sheet.
The fourth group is usually referred to as the so-called constant liabilities, that is, those that do not need to be returned. They are presented in the third section of the balance sheet and consist of capital and reserves. As you can see, grouping liabilities is very simple, there is almost no need to recount the results of the balance sections.
To determine whether absolute liquidity is in the balance sheet of a given enterprise or not, it is necessary to compare the resulting groups in pairs. From the value of the assets of each group, it is necessary to subtract the value of the corresponding group of liabilities. The terms of the absolute liquidity of the balance sheet are the presence of a payment surplus (assets more liabilities) for the first three pairs of groups and a payment deficit (liabilities more assets) for the last. Compliance with the latter condition is especially important because it indicates that the company has at its disposal working capital. This, in turn, is a prerequisite for financial stability.
It should be noted that absolute liquidity can be quite difficult to achieve, but it is definitely worth striving for it. The fact is that the lack of more liquid assets is compensated by less liquid only arithmetically, but in practice it will be impossible to use them to pay off urgent obligations.