The vast majority of enterprises in the course of their activities are faced with the fact that they form certain debts to credit organizations, suppliers, the state and other entities. Part of this debt is long-term, usually long-term loans. However, much more often short-term debt is formed, which the company should pay off in the near future. Obviously, an organization should have the means to do this, and there should be enough. To assess this situation, that is, the availability and sufficiency of a certain property to cover urgent debts, assess the liquidity of the enterprise. Most often, a number of factors are calculated for analysis. We’ll take a closer look at the absolute liquidity ratio , and dwell on other indicators in less detail.
Absolute liquidity ratio characterizes the degree to which the urgent debt of an enterprise is covered by the most liquid assets. In other words, the indicator in question indicates how many obligations the company will be able to repay immediately. In the general case, the liquidity indicator is determined as the quotient of the division of liquid assets into short-term liabilities. If property is excluded from the calculation of the liquidity indicator until only absolutely liquid assets are left there , then in the end we will get the absolute liquidity ratio.
The normative value for this indicator can be called very arbitrary. The fact is that enterprises operating in developed economies should cover about a quarter of their debts with available money and liquid investments for a short period. However, domestic firms almost never reach such an indicator, being approximately at the level of 0.1.
It is worth focusing on what property is included in the calculation of the coefficient. Everything is clear with the money; in any case, it will be absolutely liquid. As for financial investments, not everything is so obvious. For a number of reasons, certain investments may not be completely liquid, which means that they cannot be included in the calculation of the coefficient, since the company will not be able to repay urgent debts with their help.
This ratio is of extremely important practical importance. The fact is that it binds together short-term obligations and precisely the property through which these obligations will be covered. In other words, the lack of money most directly indicates the problems of solvency of the enterprise. In addition, many banks take into account the absolute liquidity ratio when deciding on a loan, which may be significant for the organization.
If an enterprise has a lack of liquidity, then it has to raise funds. At the same time, mobilization means the sale of formed stocks. Of course, this is quite an extreme measure, but if you have to resort to it, it will be advisable to calculate the liquidity ratio during mobilization in order to assess the share of debt that will be repaid in this operation.
We also note the fact that, when analyzing liquidity , the indicators of general and intermediate coverage are also calculated. The first characterizes the security of fixed-term liabilities with current assets, and the second - the same assets, but with the exception of stocks.
It is not enough to simply calculate some liquidity ratios. It is necessary to determine all these indicators, and if possible for several years, and then analyze the dynamics. Even if the ratios are at a normal level, but have negative dynamics, this is an occasion to think about stabilizing the financial situation.