How to calculate liquidity ratio

Liquidity is a qualitative indicator that characterizes the solvency of the enterprise or a separate borrower, the turnover of assets, and more specifically the ability of goods and services to be sold according to the value market without the condition of providing discounts in the minimum time framework. There are several variants of liquidity ratio, which are used for economic analysis. Consider the variants of liquidity coefficients in the analysis of the financial condition of the enterprise.

As a basis for calculating the liquidity ratio as a financial indicator, data reporting data is taken, for example, accounting reports. The purpose of their calculation is to determine the liquidity of individual categories of assets for further adequate planning activities.

The current liquidity ratio is equal to the ratio of the difference between current assets and the aggregate debt of founders for payment in the authorized capital to current liabilities (short-term liabilities). It is also called the coefficient of coating. It reflects the possibilities of the enterprise to repay short-term obligations using only current assets. The highest value of the coefficient of short-term (current) liquidity indicates a high solvency of the enterprise. If it takes the value below the unit, then there is a high degree of risk of late payment on accounts.

The urgent liquidity ratio shows the ratio of highly liquid current assets with current liabilities. Highly liquid assets are determined by the difference between current assets and logistical reserves, because The latter bring losses during compulsory implementation. Thus, this coefficient shows how successfully the enterprise can repay current obligations if there are problems with the implementation of products manufactured.

The coefficient of such an indicator as absolute liquidity reflects the ratio between the amount of funds and current financial investments and short-term obligations. In the calculations of this financial indicator, only cash and current investments of the enterprise are taken into account, which are also equal to money. By multiplying the result of calculations by 100%, we obtain the share of current debt, which the company can repay in the shortest possible time.

The results of calculations of liquidity coefficients are needed to investors for an adequate assessment of the solvency of the enterprise. The company itself calculates them to control their own activities.