Liquidity ratio

The liquidity ratio shows how well the company can meet all its current liabilities and debts.

A company then has a liquidity, if you can always make payments on time within a given period of time obligations. Liquidity can be measured: the liquidity ratio expresses that a liquid assets how many times they amount to claims against the company. (Liquidity has other indicators, such as liquidity ratio.)

General or primary liquidity ratio is when the amount of liquid assets is divided by current liabilities with its current amount. If the value of the indicator is 1 or less (the stock of current liabilities is therefore higher than its liquid assets), then the company is financially unstable, since it does not have as much money as it has to pay soon. The company's liquidity position is acceptable if the value of the ratio reaches 1.2. A value greater than 2 means excellent liquidity.

Of course, even the most liquid assets can be divided into two parts according to how they behave when they have to be used to settle claims against the company. The simplest is obviously the case when money is available and it is possible to settle the due expenses of the business. In this case, some deposit interest it's our fault, but it's part of normal operation. 

The situation is different when securities have to be sold in order to settle a debt. In such cases, it is not possible to take into account the fact that, for example, our bonds yield obsession our shares how their value is, they must be sold in order to be able to fulfill the liabilities. And this means that you may even have to swallow a serious loss or give up good future returns, since it was not by chance that we kept the in our portfolio those are the ones securities, obviously we hoped to make a profit from them. 

In order for the company's assets and objects to be suitable for payment, it often takes time, since they have to be sold. From this point of view, these assets can be classified into five categories: we call this a five-level liquidity balance sheet.

First of all, liquid assets are those that are suitable for immediate payment. We call it an immediate payment that takes place within 30 days. Money is clearly such an asset. 

A secondary liquid asset is, for example, a security if it is central bankable, which means that central bank asset defined as acceptable collateral by. 

In the third degree, inventory that can be turned into cash within 1 year can be a liquid asset. 

On the fourth and fifth levels, a liquid asset is one that is owned. Such is the case, for example, with land or real estate.