Quick liquidity ratio: the formula for the balance sheet. Indicators of solvency

One of the signs of the company's financial stability is solvency. If an enterprise can pay off its short-term obligations at any time with the help of cash resources, it is considered solvent.

In this article, we consider such concepts as liquidity, the structure of the analytical balance sheet, the formulas for quick liquidity ratios, current and absolute liquidity.

Enterprise solvency

The main indicator of the company's solvency is the absence of overdue accounts payable and the presence of a sufficient amount of cash on the settlement account. These conditions will be met if the amount of liquid assets of the firm exceeds the size of its short-term obligations at a fixed point in time.

Current solvency is analyzed based on data on financial flows: the receipt of cash must cover the performance of current liabilities. Prospective solvency is investigated using liquidity indicators.

Liquidity of a balance is the ability of a company to convert its assets into cash to pay off monetary obligations. The less time is required for this operation, the higher the liquidity indicator of such an asset. At the same time, the term of circulation must not exceed the term of performance of the obligation.

The liquidity of the enterprise is a more capacious concept. It can be defined as the ability of an enterprise, with the help of internal and external sources, to seek out payment means to pay off its obligations.

Objectives of the analysis

The liquidity analysis at the enterprise is conducted to check and adjust the solvency management of the enterprise. In conducting such an analysis, evaluate:

• Liquidity of current assets of the enterprise;
• Liquidity of the company's balance sheet as a whole;
• Solvency of the company at the current moment and in the future;
• General policy of the company aimed at maintaining the required solvency;
• Prospects for development and recommendations for the elimination of possible adverse factors.

Asset grouping

To analyze the liquidity of the balance, you need to compare the assets and liabilities of the company. For convenience, they are divided into several groups, that is, to make an analytical balance.

The balance assets, depending on the degree of their liquidity, are divided into 4 groups.

• The A1 group includes absolutely liquid assets. In this category, financial investments (short-term) and cash are introduced. In the balance sheet are lines with codes 1240 and 1250.
• Group A2 includes assets, the realization of which can take relatively little time. These include accounts receivable (according to the balance sheet code 1230). Also in some sources group A2 includes other current assets. In this group, liquidity depends on the solvency of the company's counterparties, on the forms of settlements and on the speed of payments.
• Group A3 contains slowly realizable assets. This category includes stocks of products and materials, work in progress, VAT. To turn their cash flow will take some time. In the balance sheet to group A3 lines with codes 1210, 1220 and 1260 are included. Some authors include in this category and fixed assets (code 1150).
• Finally, the most difficult assets are ranked among the A4 group. This is the entire Section I of the balance sheet (code 1100).

Categories of liabilities

All liabilities of the balance are divided according to the urgency of their repayment into groups:

• The most urgent obligations are assigned to group P1, which include short-term payables to employees of the organization, the budget and extra-budgetary funds, contractors and suppliers, etc. (Code 1520).
• Group P2 includes short-term liabilities. This category includes short-term loans and loans (code 1510), other liabilities (code 1550).
• Group P3 includes long-term loans and loans (code 1410).
• Group P4 includes permanent liabilities, including equity capital (codes 1300, 1530, 1540).

Coefficients of liquidity

In addition to absolute indicators apply relative indicators of the company's solvency. Distinguish absolute, fast and total liquidity ratios.

Consider the absolute liquidity ratio. It reflects the share of short-term liabilities that the company can quickly repay from the available cash at the moment. Calculated as the ratio of the indicator A1 to the sum of P1 and P2. The high value of this ratio indicates that the company will repay its debts with a high probability.

The next factor is the amount of current liquidity. It demonstrates how short-term liabilities of the company are covered by its current assets. The indicator is: current assets (A3 + A2 + A1) are divided into short-term liabilities (P1 + P2). The higher this indicator, the more confidence of creditors is that the obligations will be repaid.

Finally, the indicator of quick liquidity is, in fact, an intermediate value. It helps to assess how the firm will settle for its obligations (short-term) in the case when it is not possible to realize the reserves.

The resulted factors of liquidity are calculated not only for internal purposes of the enterprise, but also for external users.

Calculation of quick liquidity

The quick liquidity ratio is calculated as follows: the sum of A1 and A2 is divided by the sum of P1 and P2. That is, in the numerator we put: cash cash + financial investments (short-term) + accounts receivable. The denominator will be the amount of short-term borrowed funds, accounts payable and other liabilities.

Using the line code on balance, the formula for the fast liquidity ratio looks like this:

Kbl = p.1250 + p.1240 + p.1230 / p.1550 + p.1520 + p.1510

We calculate the coefficient using the example of the balance of a fictitious company. Unit of measurement - thousand rubles.

According to the balance sheet, the formula for the fast liquidity ratio as of December 31, 2016 will look like this:

Kbl = 2 640 + 45 + 225/1 725 + 3 180 + 37 = 0.58.

In the same way, we calculate the indicator as of December 31, 2015:

Kbl = 1 570 + 14 + 68/1 615 + 1 925 + 20 = 0.46.

The calculation shows that the company's fast liquidity has increased.

Normative value

In the economic literature, the value of the fast liquidity ratio is usually considered normal in the range of 0.5-1 and higher. However, the indicator may vary depending on the industry and the area where the enterprise operates. So, for retailers, the indicator will be 0.4-0.5.

In the analysis, attention should be paid not only to the overall value of the indicator, but also to the structure of its components. So, a significant part of liquidity can be made by accounts receivable, which is difficult to collect. In this case, the norm of fast liquidity will be the value above unity.

The Russian legislation contains several normative meanings. Thus, in Order No. 118 of the Ministry of Economics of the Russian Federation of 18.10.1997, a quick liquidity rate of one or more was recommended, with the explanation that, at lower values, the enterprise must constantly work with debtors to prevent delays in payment.

In Resolution of the Government of the Russian Federation No. 52 of 30.01.2003, the value of the coefficient for agricultural producers is given from 1.2 to 1.5.

Risk analysis

The concept of liquidity risk is associated with the solvency of the enterprise. It reflects the likelihood that the borrowing enterprise will not be able to fulfill its payment obligations in full and at the right time.

The liquidity risk is assessed on the basis of the grouping of assets and liabilities already discussed. The higher the risk, the lower the liquidity of assets and the shorter the payment term for existing liabilities. The general table is presented below:

Such a grouping clearly shows the share of liquid assets and liabilities in the overall structure. Next, we compare the values of assets and liabilities within the same risk group. The obtained ratio shows the type of liquidity and the risk zone in which the enterprise is located

So, the balance of the enterprise is considered liquid if the following inequalities are observed:

А1≥П1, А2≥П2, А3≥П3, А4≤П4 - it is considered that there are no risks at such ratios.

Liquidity is considered acceptable at the ratio A1 <П1, А2≥П2, А3≥П3, А4 ~ П4. In this case, the company's risk zone is permissible.

The ratio A1 <П1, А2 <П2, А3≥П3, А4 ~ П4 - a sign of the broken liquidity. The risk area is critical.

Finally, for the inequalities A1 <П1, А2 <П2, А3 <П3, А4˃П4, liquidity is considered a crisis. The risk zone for the enterprise is catastrophic.

conclusions

Liquidity reflects the degree of solvency of the enterprise. During the analysis, various methods are used to obtain a more complete and real description of the financial condition of the firm.

Using the grouping method, the analytical balance is made up.

Using balance data, formulas for quick liquidity ratios, current and absolute liquidity, they draw conclusions about the dynamics of changes in the indices of assets and liabilities, the liquidity of balance sheet items, and the compliance of the results with regulatory and industry-specific indicators.

It is important to note that the analysis of liquidity determines the solvency of the enterprise only for the short term (up to 12 months).