The general liquidity indicator and other criteria for assessing the liquidity of a firm

Diagnosing the financial condition of an enterprise is a very important stage in financial management. To identify the problems of the firm, you need to analyze a number of indicators that allow you to assess the current situation. The calculation is subject to financial stability indicators and liquidity levels, as well as levels of profitability and speed of turnover of various resources of the enterprise.

Analysis of liquidity can be made using only the balance sheet indicators, which means the simplicity and accessibility of this type of analysis, even for not very experienced financial managers. You can draw a conclusion about the liquidity of the company's balance sheet after the liquidity balance is drawn up. To assess the liquidity of the enterprise as a whole, it is necessary to calculate the liquidity ratios. Let us dwell on them in more detail.

The first factor is the overall liquidity indicator. His calculation is for the total size of the company's current assets to the value of short-term debts, which are contained in the fifth section of the balance sheet. The total liquidity indicator shows the company's ability to repay the most urgent debts by directing all current assets for these purposes, which, naturally, are much more liquid than non-current ones. In the economic literature, you can find the names "current liquidity indicator" or "total coverage ratio", but they mean the same thing.

For this indicator, there are values that are considered normal. The lower limit is the value of 1, which determines the liquidity requirement. In other words, current assets must be sufficient to cover short-term liabilities. If the total liquidity ratio exceeds 2, then it means that the company has an inefficient policy in the area of managing current assets.

The above range of values is generally accepted, but may not correspond to the needs and characteristics of any particular enterprise. For a more correct definition of the norm, it is necessary to make the following calculation: divide the amount of the reserve ratio and the value of short-term liabilities by the same amount of short-term liabilities. The calculated normative general liquidity indicator takes into account that when sending part of the current assets to satisfy the creditors' claims, the company will have at its disposal the necessary minimum of reserves to continue operations.

Other liquidity ratios are calculated using only more and more liquid assets. For example, when calculating the intermediate coverage indicator, the reserves that are the least liquid asset are excluded from the calculation. This indicator should also be greater than one, and from the top it is obviously limited by the value of the total coverage factor.

In the numerator of the fraction in the absolute liquidity ratio formula, only the most liquid assets are present - short-term investments and money. He estimates the amount of urgent debts that the company can recover from the most liquid assets. In percent this value should be in the range from 20 to 25. However, for modern Russian enterprises such a level is often unattainable.

Among other things, you can calculate the amount of liquidity in the mobilization of stocks. Thus, it will be concluded how much short-term liabilities the enterprise will pay off if it sells all its reserves. It is generally accepted that this share should be from half to 70%.

If any indicators go beyond the normal limits, the financial manager should make certain decisions that can improve the situation.