Intermediate liquidity ratio and other liquidity ratios of the company.

Date:

2020-07-03 02:06:07

Views:

581

Rating:

1Like 0Dislike

Share:

Table of contents:

Many enterprises in the implementation of the activities are faced with financial problems. In order to solve them, it is necessary to conduct financial diagnosis and subsequent financial recovery. In the formulation “financial diagnosis" is easiest to use certain financial ratios and indicators. Typically, the analysis is based on the study of financial ratios related to four groups: liquidity ratios, financial soundness indicators and also the levels of profitability and business activity ratios. Let us consider more closely the coefficients characterizing the liquidity of the company.

 

The First and most common is the indicator, having a very characteristic name – coefficient of General liquidity. With the help of the comparison of working capital at the disposal of the studied firms, and short-term debts, which were formed during the implementation of activities. It is obvious that current assets should fully cover these debts – the requirement of liquidity. On the other hand, there is the requirement of efficiency – it is believed that more than two-fold excess of current assets over liabilities with the shortest term indicates inefficient use of these assets.

 

However, the normal value of this index for a particular company may differ from the usual. For its determination it is necessary to proceed from the assumption that current assets after repayment of liabilities should be enough for the continuation of activities. In other words, the current assets must be equal to the amount of short-term obligations and the standard of the reserves. Interestingly, this ratio having its borders, is the limiter for another number called the coefficient of intermediate liquidity.

 

By the relationship of current assets to short-term liabilities as is determined by the ratio of the fast (intermediate) liquidity. However,  in this case, from the current reserves should be excluded the least liquid of them, which are traditionally recognized stocks. Can be formulated in such a way that the intermediate liquidity ratio shows the extent to which the firm will be able to return the most urgent debts when collection of the amount receivable. The lower limit of the indicator is also set at unity.

Recommended

Staff evaluation: system and methods

Staff evaluation: system and methods

Personnel Assessment allows you to identify how competent the employees involved in the enterprise, and it is the performance of their work – the most significant factor affecting the efficiency of the company. To clarify the impact of performa...

How to start your own business: important aspects.

How to start your own business: important aspects.

Many people, tired of working for someone else, are increasingly thinking about how to start your own business. Someone wants to open a salon, someone store, and someone enough and vegetable stalls. Before you throw in the pool with his head, it is i...

business activities. its essence and basic functions

Business activities. its essence and basic functions

The Entrepreneurial activity of the citizen – is undertaken at your own risk and independent activity, which aims to systematically profit through the sale of works, goods, services, use of the property. The citizen engaged in such activities, ...

 

The above calculation is simple, but not entirely accurate. The fact that some stocks can be more liquid than short-term investments or, for example, questionable "accounts receivable". Intermediate liquidity ratio is determined more accurately if the calculation to include the cost of products sold prepaid, as to exclude not only non-liquid financial investments, but the accounts receivable in part the repayment is doubtful.

 

The solvency of the company, that is, its ability to immediately perform calculations on the most urgent obligations, is described by the same coefficient. For its calculation in the numerator leaving only the most liquid assets. Obviously, this will cash and property equal to them. It should be borne in mind that in any case cannot be included in the calculation of illiquid investments, as this will distort the real situation. Russian organizations mostly have this level of not more than 0.1. This level in the Western economies is clearly unacceptable, as it is customary limitation from 0.2 to 0.25 from top to bottom.

 

In some cases, the company can count as a measure of liquidity in funds mobilization. It is a term that describes what part of the most urgent obligations to repay, if they implemented all the stocks of the company.

 

For accurate analysis activities it is necessary to calculate not only, for example, intermediate liquidity ratio, but all the others. And also very useful to examine the liquidity dynamics identifying trends.


Article in other languages:

BE: https://www.tostpost.com/be/b-znes/40723-kaef-cyent-pramezhkavay-l-kv-dnasc-astatn-ya-pakazchyk-l-kv-dnasc-prad.html

DE: https://www.tostpost.com/de/business/40291-verh-ltnis-staging-liquidit-t-und-die-brigen-kennziffern-der-liquidit-.html

HI: https://www.tostpost.com/hi/business/24592-intermediate-liquidity-ratio-and-other-liquidity-ratios-of-the-company.html

KK: https://www.tostpost.com/kk/biznes/41109-koefficient-araly-t-md-l-k-zh-ne-bas-a-da-k-rsetk-shter-t-md-l-k-k-s-p.html

PL: https://www.tostpost.com/pl/biznes/42937-wsp-czynnik-po-redniej-p-ynno-ci-i-inne-wska-niki-p-ynno-ci-przedsi-bi.html

ZH: https://www.tostpost.com/zh/business/30998-intermediate-liquidity-ratio-and-other-liquidity-ratios-of-the-company.html






Alin Trodden - author of the article, editor
"Hi, I'm Alin Trodden. I write texts, read books, and look for impressions. And I'm not bad at telling you about it. I am always happy to participate in interesting projects."

Comments (0)

This article has no comment, be the first!

Add comment

Related News

Rules of transportation of dangerous goods should be strictly observed

Rules of transportation of dangerous goods should be strictly observed

the Rules of carriage of dangerous goods was adopted in August 1995 by the Order of Ministry of transport of the Russian Federation   No. 73. They are a must for organizations of all forms of ownership,  including to ind...

Financial management in Russia: methods, tools and strategies

Financial management in Russia: methods, tools and strategies

One of the key factors in maintaining economic stability in the state is to ensure the effective financial management system. Proceeding from this thesis it follows that the Treasury and financial policy represent one of the funct...

How to open IE: instructions and tips

How to open IE: instructions and tips

Entrepreneurship – it is risky but incredibly lucrative. Of course, it is better to work on yourself, not on whom is unclear and receive a salary on which it is possible and to laugh and cry at the same time. Many are ready ...

For those who don't know, what is the minimum wage.

For those who don't know, what is the minimum wage.

the Main role in system of incomes of the population is minimum wage, mandatory for all employees  organizations of various forms of ownership, businesses and other structures. the Main purpose is to ensure that persons emplo...

Factor analysis of production costs and competitiveness

Factor analysis of production costs and competitiveness

Effective and meaningful factor analysis the cost of production allows you to explore all the factors that affect generation costs. It includes the study of permanent factors and variables, and the ratio between them. Modern tende...

Managing liquidity of the company

Managing liquidity of the company

the term “liquidity” comes from the Latin word for fluidity, fluid. Thus, we can conclude that the liquidity of the company characterizes its movement. Or to be more precise, the ability of the enterprise's assets to e...