Relative liquidity indicators formula. How to calculate the liquidity of an enterprise

The insolvency of a company is often a sure sign of its future bankruptcy. Failure to pay invoices issued by counterparties on time leads to lawsuits, which can be very difficult to pay due to the loss of commercial reputation. Therefore, for the successful functioning of an enterprise, timely financial analysis is necessary. Its basis is the assessment of the company's solvency using a number of indicators. These include, in particular, the total liquidity ratio.

The calculation of this indicator allows you to understand whether the company in question will be able to pay the emerging claims of its creditors on time. The ratio of current assets to current liabilities is the total liquidity ratio, the formula of which is the subject of this article.

The essence of the concept

First, let's understand what liquidity is. This economic term refers to the ability of one type of asset to be converted into another or to be sold at a price close to the market price. Money is the most liquid value because it can be exchanged for almost anything. Of fundamental importance for assessing the solvency of a company is the conversion rate. The larger it is, the more liquid its assets are.

Classification of balance sheet items

Experts distinguish three groups of assets owned by companies: high-, low- and illiquid. At the same time, you need to understand that being classified as the latter does not mean that this value cannot be sold in principle, but only that its price when sold on the market will be much less than the nominal value. If it cannot be converted into its cash equivalent under any circumstances, then it cannot be considered an asset at all and placed on the balance sheet of the enterprise, much less taken into account when the total liquidity ratio or any other indicator of solvency is calculated.

Main groups

Let's arrange the main balance sheet items in descending order of their ability to quickly be converted into money:

• funds in current bank accounts and in the cash register of the enterprise;
• government securities and bank promissory notes;
• short-term accounts receivable;
• corporate shares and bills;
• equipment, structures, buildings;
• objects of unfinished construction.

The more highly liquid assets a company has, the easier it will be for it to pay off unexpected obligations. It is the assessment of their quality that financial analysis deals with.

Main indicators

There are three main indicators for assessing the solvency of a company - absolute, quick and current liquidity ratios. The first represents the share of the most convertible assets in the volume of current liabilities. Its normal value is a figure greater than 0.2. This means that the company can pay off 20% of its short-term debt with its most quickly convertible assets. If this indicator is less than 0.2, then this is a reason to think about increasing the funds in your bank account and cash balances.

The quick (quick) liquidity ratio is the quotient of current funds minus inventories divided by short-term liabilities. The norm is from 0.8 to 1. A large number may indicate an irrational distribution of resources. The current (total) liquidity ratio is an indicator of financial analysis, which represents the ratio of current assets and current liabilities. Its normal value ranges from 1.5 to 3.

Total liquidity ratio: formula

For calculation purposes, we will divide all assets and liabilities into groups. Let us denote the assets by the letters A1, A2, A3, A4, where the number indicates the liquidity of the value in question. Let’s combine passives into groups in the same way. P1, P2, P3 and P4 are short-, medium- and long-term obligations, as well as permanent ones. An enterprise is considered liquid if the assets of each group exceed the corresponding liabilities. The total liquidity ratio (K) will be equal to the ratio of the sum of all values, except those that are difficult to sell, and short- and medium-term obligations, or K = (A1+A2+A3) / (P1+P2). If we substitute the values ​​from the financial statements into it, we will be able to assess the solvency of the company. If we consider the formula in terms of accounting analysis, then the total liquidity ratio represents the share of current assets (OA) excluding debt on statutory contributions (ZU) in the volume of short-term debt (KZ). Thus, K = (OA - ZU) / KZ.

Practical value of the indicator

Calculation of the total liquidity ratio allows you to understand whether the company is able to pay off its short-term debt through current assets. A value from 1.5 to 2.5 is considered normal. If the overall balance sheet liquidity ratio calculated using the above method is less than 1, this means that the company can declare insolvency at any time and stop paying its current bills. The next stage may be bankruptcy, because it is impossible to solve problems that are so advanced without significant financial investments. If the value of the coefficient is greater than 3, then this indicates that capital is being used irrationally. Solving this problem is very simple - you need to invest your available funds in less liquid but more profitable assets.

Liquidity management

Effective management includes not only monitoring the work of employees, but also monitoring existing property and obligations. There are two main ways to manage liquidity risks: control over the volume of assets and liabilities. Management in this area is based on the so-called GAP analysis, which allows you to assess the absolute and relative gap between available and borrowed funds. It is aimed at maintaining a conditionally safe volume of assets that will make it possible to respond to unexpected obligations to counterparties.

Similarly, any person saves an amount in case of unforeseen circumstances. Proper liquidity management allows an enterprise not only to survive during an economic crisis, but also to buy resources more cheaply when unexpected profitable offers arise.

Increased solvency

If the total liquidity (coverage) ratio is less than 0.8, then any crisis event can bring the enterprise to the brink of bankruptcy. There are several ways to prevent such a sad scenario from happening:

• Reduce accounts receivable.
• Increase the profitability of the enterprise.
• Increase the volume of your own current assets and reduce the amount of inventories.
• Issue securities to additionally attract free cash resources.
• Reduce the volume of short-term liabilities.

Optimizing the structure of assets and liabilities is a rather complex task that requires drawing up a competent and thoughtful scheme. If the owner of the enterprise does not understand this, then it is better to invite a highly qualified specialist. The costs of hiring him will pay off many times over in the future, since the correct structure of own and borrowed funds is the basis for the prosperity of any commercial organization.

Calculated by division current assets to short-term liabilities(current liabilities). The initial data for the calculation contains the company's balance sheet.

Calculated in the FinEkAnalysis program in the Solvency Analysis block.

Current liquidity ratio - what it shows

Shows the company's ability to pay off current (short-term) obligations using only current assets. The higher the ratio, the better the solvency of the enterprise. This indicator takes into account that not all assets can be sold urgently.

Liquidity ratios are of interest both to the management of the enterprise and to external subjects of analysis:

• absolute liquidity ratio - for suppliers of raw materials and supplies;
• current ratio- for investors;
• quick liquidity ratio - for banks.

Current ratio - formula

General formula for calculating the coefficient:

Current ratio - diagram

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Total liquidity ratio is the ease of selling or converting certain material or other assets into real cash in order to cover current financial obligations. Thus, the analysis of this ratio provides a forecast of whether the enterprise can fully cover all financial obligations that it currently has.

What is liquidity determined by?

All assets that an enterprise has are fully reflected in its balance sheet, and each of these factors has its own liquidity:

• funds currently present in the cash registers or in the company’s accounts;
• securities or bank bills;
• existing accounts receivable, as well as corporate securities and loans issued;
• stocks of raw materials and goods present in warehouses;
• buildings and constructions;
• equipment and machinery;
• unfinished construction.

What it is?

The total liquidity ratio is a financial indicator for the calculation of which the company’s reporting is used. This tool allows you to determine whether a company can pay off its current debt using its current assets. The main meaning of such indicators is to compare the number of existing debts of the company with its working capital necessary to ensure the repayment of such debts.

Thus, several liquidity ratios are considered, as well as formulas for their calculation:

• quick ratio;
• absolute liquidity ratio;
• net working capital.

Current liquidity

The current ratio (coverage ratio or total liquidity ratio) is the ratio of a company's current assets to its various short-term liabilities. The balance sheet is used as the source of this data. At the same time, there is nothing difficult in calculating the total liquidity ratio if all the necessary information is available. The formula is as follows:

• current assets (not taking into account long-term receivables) / all current liabilities present.

What does it show?

This ratio shows whether the company can pay off any current liabilities using only its current assets. The higher this indicator is, the more the solvency of a particular organization will increase. The total liquidity ratio, the calculation formula for which was shown above, determines not only how solvent the company is at the moment, but also allows you to determine the financial condition of the enterprise in the event of any emergency circumstances.

The normal value of this coefficient is from 1.5 to 2.5. In this case, the figure will depend on the field in which the company in question operates. It is worth noting that any deviations both below and above the established norm are unfavorable. If the current (total) liquidity ratio is less than 1, then this indicates a serious financial risk, because the company does not have the ability to reliably pay its short-term obligations. If this coefficient has a value of more than 3, then the capital structure used by the enterprise may be considered irrational.

Depending on the industry in which the company operates, as well as the quality and structure of the assets available to it, this value can vary significantly.

Peculiarities

It is worth noting that the coverage ratio (total liquidity) itself does not provide a complete picture of the performance of a particular organization. In the vast majority of cases, those companies that have insignificant production and material inventories, but at the same time have access to money for bills payable, can safely work with lower indicators of this ratio. The same cannot be said about enterprises that have large inventories of material assets and sell their goods on credit.

Another option for checking the sufficiency of existing assets is to determine immediate liquidity. It is worth noting that often all kinds of suppliers, banks and shareholders are interested in this particular indicator, and do not try to find out the overall liquidity ratio of the balance sheet, since the company in the course of its work may encounter various circumstances in which it will need to instantly pay off certain unforeseen expenses . Thus, it will need to use all securities, cash, accounts receivable, and any other funds, that is, all assets that can ultimately be converted into cash.

What does this ratio show?

The quick liquidity ratio also allows you to determine whether a company can pay off all its current liabilities using current assets. In this it is similar to what the total liquidity ratio represents. But in this case, the difference is that the calculation uses exclusively medium-liquid and highly liquid current assets, which include money in operational accounts, all kinds of raw materials and supplies, goods, as well as receivables with a short maturity.

How is it different from the general one?

In principle, the total liquidity ratio characterizes the same thing, but in this case, completely different indicators are used in the calculation process, that is, unfinished production is not taken into account, as well as the company’s reserves of specialized materials, semi-finished products and all kinds of components. The balance sheet is also used as a source of all the necessary information, but the assets present in the company are not taken into account, because if they are forced to sell, the losses will be the maximum possible.

How important is it?

In fact, many do not understand that this financial ratio is one of the most important and shows how many short-term obligations can be immediately repaid using various funds present in the accounts, as well as short-term securities or proceeds from accounts receivable debt. The higher this indicator is, the higher the company's solvency will become. A normal indicator is a value of more than 0.8, which shows that upcoming revenues and cash already available to the company can fully cover the company’s current debts.

How to increase it?

In order to increase the value of this indicator, it is necessary to take measures aimed at increasing the existing working capital, as well as attract all kinds of long-term loans and credits. However, if the value of this coefficient is more than three, this may indicate that the capital structure is irrational. There are many reasons why such liquidity can be formed. Examples: slow turnover of funds invested in various inventories, as well as an increase in accounts receivable.

For this reason, it is quite important to also take into account the absolute liquidity ratio, the value of which should be higher than 0.2.

What does the absolute liquidity ratio show?

This ratio demonstrates how much short-term debt an organization can repay using only the most liquid assets, that is, short-term securities, as well as the cash it has.

The absolute liquidity ratio is the ratio of cash, as well as existing short-term financial investments, to all short-term liabilities, that is, the current liabilities of the company. The balance sheet is used as a source of the necessary information in the same way as when determining current liquidity, but in this case only cash, as well as funds equal to them, are taken into account.

What should it be like?

As mentioned above, the norm is to maintain a value of this indicator of more than 0.2. The higher this figure is, the better the company's solvency will be. Again, an inflated figure indicates that the company has an irrational capital structure and also has too many unused assets.

Thus, if the cash balance is maintained at the level of the reporting date, then all of the company’s short-term debt as of that date can be fully repaid within five days. This regulatory restriction is used in the process of financial analysis by foreign specialists. However, there is no precise justification why, in order to maintain a normal level of liquidity, the amount of cash present must cover at least 20% of all current liabilities.

However, in any case, it is best to try to ensure that this indicator corresponds to a certain value and that your company has sufficient absolute liquidity in the current market, as this will contribute to the competitiveness of the enterprise and attract additional investments.

The general indicator of balance sheet liquidity is an indicator characterizing the ratio of the sum of all current assets of the enterprise and the sum of its long-term and short-term liabilities.

Different groups of assets and liabilities are included in amounts with different weights, taking into account the timing of receipt of funds and repayment of liabilities.

More liquid assets and more urgent liabilities are taken into account at higher ratios.

To simplify, we can say that calculating the overall balance sheet liquidity indicator is an attempt to reduce the entire liquidity assessment to one value.

However, the weights in this formula are taken in fact randomly, since their exact calculation requires very high qualifications and is meaningless.

Therefore, this indicator is considered only together with other indicators of liquidity and solvency.

Calculation formula (according to reporting)

First, the values ​​of indicators , and are calculated from the balance sheet, and then they are substituted into the following formula:

(A1 + 0.5 * A2 + 0.3 * A3) / (P1 + 0.5 * P2 + 0.3 * P3)

Standard

Conclusions about what a change in indicator means

If the indicator is higher than normal

Presumably the company has a liquid balance sheet

If the indicator is below normal

Presumably the company does not have a liquid balance sheet

If the indicator increases

Balance sheet liquidity is growing

If the indicator decreases

Balance sheet liquidity is declining

Notes

The indicator in the article is considered from the point of view not of accounting, but of financial management. Therefore, sometimes it can be defined differently. It depends on the author's approach.

In most cases, universities accept any definition option, since deviations according to different approaches and formulas are usually within a maximum of a few percent.

The indicator is considered in the main free service and some other services

If you see any inaccuracy or typo, please also indicate this in the comment. I try to write as simply as possible, but if something is still not clear, questions and clarifications can be written in the comments to any article on the site.

Best regards, Alexander Krylov,

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The liquidity ratio allows you to assess the organization's ability to pay off its obligations using current assets transformed into cash.

Liquidity and liquidity ratio

Liquidity refers to the ability of an asset to be transformed into money at a greater or lesser speed. The faster an asset can be sold, the more liquid it is considered. Cash is considered the most liquid; industrial equipment and buildings are considered the most difficult to sell. In relation to an organization, its liquidity is the ability to pay off its obligations on time, selling (if necessary) its existing assets.

To reflect this ability in numerical terms, the liquidity ratio is used. It means a group of coefficients, each of which evaluates a certain aspect of the organization’s activities, and together they give an overall holistic picture of its effectiveness. The essence of the liquidity ratio is to compare the amount of debts and current assets of the organization, and assess their volume necessary to repay the debt.

To calculate the ratio, the organization’s balance sheet data is used. Moreover, it would be more correct to make a calculation not for the current moment, but to trace the dynamics over at least the last two to three years

Calculation of liquidity ratio

The liquidity ratio includes the following ratios:

Total liquidity (coverage), which reflects the organization’s ability to pay off its short-term debts:

Quantity = Working capital / Current liabilities

The optimal value of Kol is 1.5-2.5. If it is below 1.5, this indicates that the organization is experiencing difficulties in repaying current debts, because there are not enough cash assets or it is not always possible to quickly turn them into money to pay obligations. For the manager, this is a signal that it is necessary to find an opportunity to reduce accounts payable to counterparties. But a value greater than optimal is also not a positive signal - this means that the organization has resources at its disposal that are not used or are not used effectively enough. It may be worth investing part of the funds in long-term projects for a period of more than 1 year.

Urgent or quick liquidity, reflecting what part of the obligations the organization is able to pay off with money, quickly collecting current debts or selling short-term securities:

Kbl = (Short-term investments + Cash + Short-term receivables) / Current liabilities

The optimal value is 0.8 - it means that the organization can pay off 80% of its debts promptly, even if they are presented for collection all at once. To do this, it will not have to put up for auction either premises or equipment - it will be enough to use quick-liquid assets. The higher the indicator, the better (to a certain extent), because this means that there are prospects for future income (from collected debts or securities), and not just money in accounts. Too high a value (more than 3) indicates irrational use of assets - either there are too many accounts receivable, or the available money is not working, which would be worth investing in long-term financial instruments. KBL less than 0.7 signals the need to increase working capital, possibly by obtaining a long-term loan. But such a value may scare away potential investors, as it indicates that the organization does not have quick- and medium-liquid assets.

Absolute liquidity, which allows you to determine short-term obligations, the debt for which the organization is able to repay promptly.

Kab = (Cash + Short-term investments) / Current liabilities

The normal value of Kab is greater than 0.2. A low indicator indicates that the organization cannot immediately pay debts with cash or money in accounts, even if it quickly sells its existing securities. An indicator above 0.5 indicates the presence of money lying uselessly in the company’s accounts, which should be invested in long-term financial instruments.

It is not always possible to understand just how well a company is doing with a quick glance at the balance sheet. Liquidity ratios are an excellent hint for a manager, which indicates the direction of further work to improve the efficiency of the organization.

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