ability of companies to pay its obligations on time

The ability of companies to pay its obligations on time. This requires that the total amount of total assets. If this is not it, not what it will pay its debts.

Do you have enough liquid assets to the company? Liquidity is the ability of companies to repay their obligations on the due date is near. We can talk about the debt owed to suppliers, payroll, tax payments, etc.

In order to answer this question you need to determine if the working capital of the company, which is calculated as the difference between assets and short-term liabilities.

Measure of liquidity is also the ratio of assets to liabilities short term: usually, if this value is greater than 1. This means that the company has sufficient liquid assets to pay debts.

Liquidity of any thing is an opportunity to quickly sell it at a market price. The easier it is to exchange a thing for money, the more liquid it is considered. For example, the machines in the plant have low liquidity – to sell them quickly and at real cost will not work. And money has absolute liquidity – they, in fact, do not need to change on themselves, they are self-liquid.

knows how to work with numbers, Both machines and money in this case are called assets. An asset in the language of finance is a property. Liquidity can be not only in an individual asset, but also in the company as a whole.

Why evaluate the company’s liquidity

Liquidity of assets is assessed to understand how solvent the company that owns them is, whether it can actually pay off its debts.

If the firm has a lot of money in the accounts, and in warehouses large stocks of goods that are easy to sell, it is easier to get a loan from the bank or delivery without prepayment. So she’s going to have no problem paying off on time.

If the only asset of the enterprise – the dilapidated building of the plant on the outskirts of the city, and the cash register is empty, in case of bankruptcy creditors will wait a long time for their money back.

Factors influencing liquidity

To be liquid, the company must have many liquid assets. In addition to balances in accounts, short-term investments and fast-selling inventories, equity is also needed, especially the statutory fund. Investments are better diversified so that their price does not depend on the situation in individual markets.

The liquidity of the company is also influenced by internal factors: the company’s management system, rational organizational structure, its image. All this is not in the balance sheet: the quality of management can be learned by analyzing other documents of the company – for example, charter and financial statements. The reputation is influenced by media publications, opinions of customers, market experts and even competitors.