The general liquidity index and other criteria for assessing the liquidity of a firm
Diagnosis of financial conditionenterprise is a very important stage of financial management. To identify the problems of the firm, you need to analyze a number of indicators that allow you to assess the current situation. The calculation is subject to financial stability indicators and liquidity levels, as well as profitability levels and the turnover rate of various resources of the enterprise.
Liquidity analysis can be performed fromusing only the indicators of the balance sheet, which means the simplicity and accessibility of this type of analysis, even for not very experienced financial executives. A conclusion can be made about the liquidity of the balance sheet of the enterprise after the liquidity balance is drawn up. 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 factor is the totalliquidity. His calculation is for the total size of the company's current assets to the value of short-term debts, which are contained in the fifth section of the balance sheet. The overall liquidity indicator shows the company's ability to repay the most urgent debts by directing all current assets for these purposes, which, naturally, are much more liquid than non-current. In the economic literature, you can find the names "current liquidity indicator" or "total coverage ratio", but they mean the same thing.
For this indicator there are values,which are considered normal. The lower limit is the value of 1, which determines the liquidity requirement. In other words, current assets must be sufficient to cover short-term liabilities. If the total liquidity ratio exceeds 2, then it means that the company has an inefficient policy in the area of managing current assets.
The above range of values isgenerally accepted, but may not correspond to the needs and characteristics of any particular enterprise. For a more correct definition of the norm, the following calculation is necessary: to divide the amount of the reserve ratio and the value of short-term liabilities by the same amount of short-term liabilities. The calculated normative general liquidity indicator takes into account that when sending part of the current assets to satisfy the creditors' claims, the company will have at its disposal the necessary minimum of reserves to continue operations.
Other liquidity ratios are calculatedby using only more and more liquid assets. For example, when calculating the intermediate coverage factor, the reserves that are the least liquid asset are excluded from the calculation. This indicator must also be greater than one, and from above, it is obviously limited by the value of the total coverage factor.
In the numerator of the fraction in the coefficient formulaabsolute liquidity there are only the most liquid assets - short-term investments and money. He estimates the amount of urgent debts that an enterprise can recover from the most liquid assets. In percent this value should be in the range from 20 to 25. However, for modern Russian enterprises such a level is often unattainable.
Among other things, you can calculate the valueliquidity in the mobilization of stocks. Thus, it will be concluded how much short-term liabilities the enterprise will pay off if it sells all its reserves. It is generally accepted that this share should be from half to 70%.
If any indicators go beyond the normal limits, the financial manager should make certain decisions that can improve the situation.