Coefficient of total liquidity, as well as fast and instant liquidity

Liquidity is one of the indicators of the company's solvency. There are three types of liquidity: current, fast, instant. Next, consider what these indicators are talking about, how they are calculated.

The total liquidity ratio explains how quickly an organization is able to repay current liabilities. This indicator gives an estimate of how much approximately rubles from assets are accounted for by the ruble of current liabilities. Each enterprise pays short-term payments, mainly, current assets. Thus, if the total liquidity ratio is greater than 1, then the organization repays current payments with fully current assets, and its activities are effective. It is the current assets that save the organization when there are any unforeseen situations that cause costs. The liquidity indicator can be applied not only in relation to a particular enterprise, but also to precious metals, securities, real estate, equipment, etc.

The formula by which the coefficient is determined: (the amount of current assets, receivables and founders' contributions to contributions) / current liabilities.

The high total liquidity ratio helps the organization to receive short-term loans, as creditors necessarily look at this indicator. If it is high enough, then the enterprise has less risk of making payment arrears or not giving the creditor any money at all. In the case where the total liquidity ratio is low (less than 1), the organization is experiencing difficulties in repayment of current liabilities. Hence it follows that the financiers need to analyze the cash flow of the organization. So, for example, for fast-food enterprises, retail trade, characterized by a large turnover of cash. And the overall liquidity ratio will be low. If this ratio is too high, then the enterprise does not use current assets effectively enough, as well as short-term financing. Although lenders regard the high importance of the liquidity ratio as a firm position of the enterprise in the market.

The quick liquidity ratio shows the degree of financial stability of an enterprise from the perspective of a short-term period. It is also called the coefficients of strict liquidity, urgent liquidity, intermediate liquidity. This indicator is calculated as: (the difference between current assets and inventories) / short-term liabilities.

This indicator is more stringent than current liquidity. He points to the rapid solvency of the organization and tells how soon its liquidity can cover short-term debt. It is recommended that this figure be within 0.7 - 1.5.

The instantaneous liquidity ratio shows how much the organization is able to cover short-term payments at the expense of cash. Here, short-term financial investments are also taken into account . The coefficient is calculated by the formula: (amount of cash and short-term investments) / current liabilities - (the amount of future income, reserves of future payments).

This ratio indicates what proportion of accounts payable can be repaid by the organization immediately. If, in analyzing the activity of an enterprise, the financier receives a coefficient value of more than 0.2, the firm can repay its own obligations in a short time. In the case where the instant liquidity ratio is below 0.2, the enterprise risks not being able to cope with short-term credit debts.

The financial manager of the organization must constantly analyze the current situation and assess the liquidity of the enterprise. This will help in time to take measures to increase its solvency.