Absolute liquidity ratio - the most important indicator of the company's solvency
The vast majority of enterprises in the course ofcarrying out its activities, is faced with the fact that they have certain debts to credit institutions, suppliers, the state and other entities. Part of this debt is long-term, usually it is long-term loans. However, short-term debt is much more often generated, which the company must repay in the near future. Obviously, an organization should have the means to do this, and it should be enough. To assess this situation, that is, the availability and adequacy of certain property to cover urgent debts, assess the liquidity of the enterprise. Most often, a series of coefficients are calculated for the analysis. We will take a closer look at the absolute liquidity ratio, and on the remaining indicators we will stop in less detail.
The coefficient of absolute liquidity characterizesthe degree to which the company's outstanding debt is covered by the most liquid assets. In other words, the indicator in question indicates how much the firm will be able to repay immediately. In general, the liquidity ratio is determined by the private division of liquid assets into short-term liabilities. If we exclude property from the calculation of the liquidity indicator, until absolutely liquid assets are left there, then in the end we will get the absolute liquidity ratio.
The normative value of this indicator can beto call it very conditional. The fact is that enterprises operating in developed economies must cover about a quarter of their debts through available money and liquid investments for a short period of time. However, domestic firms of this indicator do not reach almost never, being approximately at the level of 0.1.
It is worthwhile to focus on what propertyis included in the calculation of the coefficient. With money everything is clear, they will in any case be absolutely liquid. As for financial investments, not everything is so obvious. For a number of reasons, these or other investments may not be absolutely liquid, which means that they can not be included in the calculation of the ratio, since the company will not be able to return urgent debts with their help.
This ratio is extremely importantpractical significance. The fact is that it connects short-term obligations with each other and precisely that property, at the expense of which these liabilities will be covered. In other words, the lack of money in the most direct way indicates problems of the company's solvency. In addition, many banks take into account the absolute liquidity ratio in making a decision to grant a loan, which may be significant for the organization.
If an enterprise has a defectliquidity, then he has to raise funds. At the same time, mobilization means the realization of the formed reserves. Of course, this is quite an extreme measure, but if it is necessary to resort to it, it will be expedient to calculate the liquidity ratio at mobilization in order to estimate the share of debt that will be repaid in this operation.
We also note the fact that in the analysisliquidity expects the indicators of general and intermediate coverage. The first characterizes the security of fixed-term liabilities with circulating assets, and the second - with the same assets, but excluding stocks.
It is not enough to simply calculate someliquidity ratios. It is necessary to determine all these indicators, and if possible in a few years, and then analyze the dynamics. Even if the coefficients are at a normal level, but have negative dynamics, then this is an occasion to think about stabilizing the financial situation.