Analysis of the liquidity of the organization. Analysis of the liquidity of the balance sheet of the enterprise
The solvency of the enterprise depends primarily on its liquidity. Liquidity means the ability of values \u200b\u200bto easily turn into money, i.e. absolutely liquid funds. Liquidity can be viewed from two sides: as the time required to sell the asset, and as the amount earned from the sale of the asset. Both of these parties are closely related: you can often sell an asset in a short time, but with a significant discount in price.
The liquidity of an enterprise is its ability to turn its assets into money to cover all necessary payments as they become due. An entity whose working capital consists primarily of cash and short-term receivables is generally considered more liquid than an entity whose working capital consists primarily of inventories.
To determine the solvency of the company, taking into account the liquidity of its asset, a balance sheet is usually used. The need for analysis of balance sheet liquidity arises in market conditions due to increased financial constraints and the need to assess the solvency of the enterprise.
The liquidity of the balance sheet is defined as the degree to which the liabilities of the enterprise are covered by its assets, the period of converting of which into cash corresponds to the maturity of the obligations. Asset liquidity is the reciprocal of the liquidity of the balance sheet during the time that assets are converted into cash. The less time is required for this type of asset to take on a monetary form, the higher its liquidity.
For a preliminary assessment of the liquidity of the enterprise, data from the balance sheet are used. Based on them, a balance of liquidity is drawn up. An asset and a liability in it have four sections.
All assets of the company, depending on the degree of liquidity, i.e., the rate of conversion into cash, can be conditionally divided into the following groups.
1. The most liquid assets (A 1) - the amount of all items of cash that can be used to perform current settlements immediately. This group also includes short-term financial investments (securities).
2. Marketable assets (A 2) - assets for the circulation of which in cash requires a certain time. This group may include receivables (payments for which are expected within 12 months after the reporting date) and other current assets. The liquidity of these assets is different and depends on subjective and objective factors: the qualifications of the financial employees of the enterprise, relations with payers and their solvency, the conditions for granting loans to customers, and the organization of bill circulation.
3. Slow-moving assets (A 3) - the most liquid assets are stocks, receivables (payments for which are expected more than 12 months after the reporting date), value added tax on acquired values. It is advisable, using the data of analytical accounting, to reduce VAT by the amount of compensation from the profits of the enterprise. Inventory cannot be sold until a buyer is found. Stocks of raw materials, materials and work in progress may require pre-processing before they can be sold and converted into cash. It should be noted that the article “deferred expenses” is not included in this group.
4. Hard-to-sell assets (A 4) - assets that are intended to be used in economic activities for a relatively long period of time. This group may include articles 1 of the section of the asset of the balance sheet “Non-current assets”.
The first three groups of assets during the current economic period may constantly change, and relate to the current assets of the enterprise. Current assets are more liquid than other assets of the enterprise.
The liabilities of the balance sheet by the degree of increasing maturity of obligations are grouped as follows:
The most urgent liabilities (P 1) are payables, settlements on dividends, other short-term liabilities, as well as loans not repaid on time (according to the appendices to the balance sheet).
2. Short-term liabilities (P 2) - short-term borrowed loans of banks and other loans payable within 12 months after the reporting date.
3. Long-term liabilities (P 3) - long-term borrowed loans and other long-term liabilities (article 1V of the balance sheet section "Long-term liabilities").
4. Permanent liabilities (P 4) - Articles I11 of the balance sheet section “Capital and Reserves” and separate articles V of the balance sheet section that were not included in the previous groups: “Deferred income”, “Reserves for future expenses and payments”.
Classification of assets and liabilities of the balance sheet, their comparison allow us to assess the liquidity of the balance sheet.
The balance sheet liquidity is the degree to which the obligations of the enterprise are covered by such assets, the period of conversion of which into cash corresponds to the maturity of obligations. The balance is considered absolutely liquid if:
A 1 > N 1
A 2 > P 2 (1)
A 3 > P 3
A 4 < P 4
Simultaneous observance of the first three rules necessarily entails the achievement of the fourth, because if the totality of the first three groups of assets is greater than (or equal to) the sum of the first three groups of liabilities, the fourth group of liabilities will necessarily overlap (or will be equal to) the fourth group of assets. The latter provision has a deep economic meaning: when constant liabilities overlap difficult to sell assets, an important solvency condition is met - the enterprise has its own working capital, which ensures an uninterrupted reproduction process; the equality of constant liabilities and hard-to-sell assets reflects the lower limit of solvency at the expense of the company's own funds.
In the case when one or several inequalities have a sign opposite to that recorded in the optimal variant, the liquidity of the balance sheet is more or less different from the absolute one. Moreover, the lack of funds in one group of assets is compensated by their excess in another group, although compensation in this case takes place only in terms of value, since in a real payment situation less liquid assets cannot replace more liquid ones.
The liquidity balances for several periods give an idea of \u200b\u200bthe trends in the change in the financial position of an enterprise.
For a comprehensive assessment of the liquidity of the balance sheet as a whole, you should use the general indicator of liquidity (L), calculated by the formula:
where A j, P j - the results of the respective groups by asset and liability;
j are weights.
Using this indicator, an assessment of changes in the financial situation at the enterprise in terms of liquidity is carried out. This indicator is also used when choosing the most reliable partner from among many potential partners based on reporting.
The overall liquidity ratio of the balance sheet shows the ratio of the sum of all liquid assets of the organization to the sum of all payment obligations (both short-term and long-term), provided that various groups of liquid assets and payment obligations are included in the indicated amounts with weighting factors that take into account their significance from the point of view timing of receipt of funds and repayment of obligations. This indicator allows you to compare the balance sheets of the company relating to different reporting periods, as well as the balances of various enterprises and find out which balance is more liquid.
The general balance sheet liquidity indicator discussed above expresses the ability of an enterprise to make settlements for all types of liabilities - both for the nearest and for the distant ones. This indicator does not provide an idea of \u200b\u200bthe company's capabilities in terms of repayment of short-term obligations.
Agreement on the use of site materials
Please use the work published on the site solely for personal purposes. The publication of materials on other sites is prohibited.
This work (and all others) is available for download for free. Mentally, you can thank its author and the site team.
Send your good work in the knowledge base is simple. Use the form below
Students, graduate students, young scientists who use the knowledge base in their studies and work will be very grateful to you.
Similar documents
The goals and objectives of the analysis of liquidity, balance sheet and solvency of the organization. The concept and types of liquidity, the value of liquidity balance in the assessment of solvency. Analysis of the relationship of liquidity and solvency of the enterprise.
term paper added 04/05/2010
Drawing up financial statements, its place and role in the analysis of the business entity. Disclosure of the fundamental principles of financial analysis, methods of research. Valuation of assets and liabilities of balance sheet, solvency and liquidity.
thesis, added 07/06/2015
The nature and types of audit-related services. A brief description of the financial and economic activities of LLC "TC Compass". Analysis of financial statements, liquidity and solvency of the enterprise. Assessment of the probability of bankruptcy of an economic entity.
term paper, added 09/10/2013
The general concept of liquidity. Group assets of an enterprise. The degree of urgency of liabilities. Calculation of the overall liquidity balance sheet. The purpose of the analysis of solvency, its calculation using liquidity ratios. Indicators for assessing creditworthiness.
test work, added 02/11/2009
The most important accounting principles specific to the company LLC "IVA-URAL". Analysis of financial position. Assessing the value of the organization’s net assets and analyzing the ratio of assets by liquidity and maturity obligations.
practice report, added 01/19/2014
The value of the balance sheet in assessing the financial activities of the enterprise. The main indicators of the agricultural production complex "Belovsky". Assessment of liquidity and solvency of the balance sheet. Horizontal analysis of assets and liabilities.
term paper, added 03/18/2016
The main indicators of financial and economic activity of LLC "Managerdom-Service". Assessment of the financial stability of the enterprise as the basis of its solvency. Analysis of property and sources of its formation, liquidity and solvency of the enterprise.
term paper added 03/29/2009
Liquidity analysis
Liquidity - the mobility of the assets of enterprises, firms, banks, suggesting the possibility of uninterrupted payment on time of credit and financial obligations and legal monetary claims. Distinguish liquidity banks, firms, liquid assets, liquid assets. To determine the degree liquidity many countries use coefficient systems liquidity as the ratio of certain asset and liability items, normative acts are developed and approved to preserve the established level of these ratios. Liquidity firms - the ratio of its debt to liquid assets, i.e. those funds that can be used to pay off debt: cash, deposits with the bank, tradable elements of working capital, etc. There is a classification of cash and financial assets by degree liquidity, i.e. the speed and ease of their conversion to cash or another acceptable means of payment; higher degree liquidity, the, as a rule, the lower the yield on this asset, and vice versa.
Liquidity of an economic entity can be recognized by its balance sheet. So, essentially, the liquidity of the balance of the studied enterprise will mean the liquidity of the entire enterprise as a whole.
Liquidity balance sheet - the degree of coverage of the obligations of the enterprise with its assets, the period of conversion of which in cash corresponds to the maturity of obligations. Liquidity is determined by the ratio of debt and liquid assets at the disposal of the enterprise. Liquids are those funds that can be used to pay off debts (cash on hand, deposits placed on bank accounts, securities, tradable elements of working capital, such as: fuel, raw materials, etc.).
The objective of the analysis of balance sheet liquidity arises in connection with the need to assess the solvency of the organization, i.e. her ability to timely and fully pay off all her obligations. Liquidity means the unconditional solvency of the enterprise and implies constant equality between assets and liabilities, both in total amount and in terms of occurrence.
Balance sheet liquidity analysis consists in comparing assets grouped by the degree of their liquidity and arranged in decreasing order of liquidity, with liabilities on liabilities, grouped by maturity.
Depending on the degree of liquidity, i.e. the rate of conversion into cash, the assets of the enterprise are divided into the following groups.
A1.Most liquid assets - to it includes all cash items of the enterprise and short-term financial investments (securities). This group is calculated as follows:
A1 \u003d Financial investments + Cash
or p. 1240 + p. 1250.
A2.Fast-selling assets - accounts receivable.
A2 \u003d Accounts receivable or p. 1230.
AZ.Slow-moving assets - section II articles of the balance sheet asset, including inventories, value added tax, receivables (payments for which are expected more than 12 months after the reporting date) and other current assets.
AZ \u003d Inventories + Long-term receivables + VAT + Other current assets.
or p. 1210 + 1p. 220 + p. 1260
A4.Difficult assets - section 1 of the balance sheet asset - non-current assets.
A4 \u003d Non-current assetsor p. 1110.
Liabilities balance are grouped by the degree of urgency of payment.
P1. The most urgent obligations - to this includes accounts payable.
P1 \u003d Accounts payableor p. 1520.
P2. Short-term liabilities - these are short-term borrowed funds, debt to participants on the payment of income, other short-term liabilities.
P2 \u003d Short-term borrowed funds + Other short-term liabilities
or p. 1510 + p. 1550.
PZ. Long-term liabilities - these are balance sheet items related to sections IV and V, i.e. long-term loans and borrowings, as well as deferred income, reserves for future expenses and payments.
PP \u003d Long-term liabilities + deferred income + Estimated liabilities
or p. 1400 + p. 1530 + p. 1540.
P4. Permanent liabilities or stable - these are the articles of section III of the balance sheet “Capital and reserves”.
P4 \u003d Capital and reserves (equity of the organization)
or p. 1300.
To determine the balance sheet liquidity, one should compare the results of the given groups by asset and liability.
The balance is considered absolutely liquid if the following relationships hold:
Tcurrent liquidity indicates solvency (+) or insolvency (-) of the organization closest to the moment in question is a period of time:
TL \u003d (Al + A2) - (P1 + P2);
Pprospective liquidity - this is a solvency forecast based on a comparison of future receipts and payments:
PL \u003d A3 - PZ.
Consider the main types of possible situations.
1. A1\u003e P1; A2\u003e P2; A3\u003e PZ; A4< П4; А1 > P1; A2< П2; A3 > PZ; A4< П4 при (А1+А2)>(P1 + P2).
Normal, reliable solvency and financial stability of the organization.
2. A1\u003e P1; A2< П2; A3 > PZ; A4< П4 при (А1+А2)<(Ш + П2) или А1>P1; A2<П2;АЗ<ПЗ; А4<П4 при (А1+А2)>(P1 + P2).
There is episodic insolvency and financial instability of the enterprise.
3. A1\u003e W; A2< П2; A3 < ПЗ; А4 < П4 при (А1 +А2)<(П1 + П2) или А1< П1; А2 > P2; A3< ПЗ; А4 > P4 at (A1 + A2)<(Ш + П2).
There is an increase in insolvency and financial instability of the enterprise.
4. A1< П1; А2 < П2; A3 > PZ; A4\u003e P4 (A4< П4).
There is a chronic insolvency and financial instability of the enterprise.
5. A1< П1; А2 < П2; A3 < ПЗ; А4 > P4.
There is a crisis financial condition of the enterprise, close to bankruptcy.
Comparison of liquid assets and liabilities allows you to calculate relative indicators. These indicators are the liquidity ratios of the enterprise. These ratios allow you to determine the ability of the company to pay its short-term obligations during the reporting period. The most important among them from the point of view of financial management are the following:
Total (current) liquidity ratio;
Quick ratio;
Absolute liquidity ratio;
Own working capital.
The ratio of total (current) liquidity. It gives an overall assessment of the liquidity of assets, showing how many rubles of current assets are accounted for one ruble of current liabilities. The logic of calculating this indicator is that the company repays short-term liabilities mainly due to current assets; therefore, if current assets exceed current liabilities, an enterprise can be considered as successfully functioning (at least theoretically).
Total (current) liquidity ratio calculated as the quotient of dividing current assets into short-term liabilities and shows whether the enterprise has enough funds that can be used to repay its short-term liabilities over a certain period. According to generally accepted international standards, it is believed that this ratio should range from one to two. The lower limit is due to the fact that working capital should be at least sufficient to pay off short-term obligations, otherwise the company will be in danger of bankruptcy. The excess of current assets over short-term liabilities more than two (three) times is also considered undesirable, as it may indicate an irrational capital structure. The value of the indicator can vary by industry and type of activity, and its reasonable growth in dynamics is usually regarded as a favorable trend.
To t \u003d current assets / current liabilities \u003d
Page 1200 / p. 1500 - (1530 + 1540 + 1430 + 1550)
Next on our list is quick (quick) liquidity ratiodisclosing the ratio of the most liquid part of current assets (cash, short-term financial investments and receivables) to short-term liabilities. The indicator is similar to the current ratio; however, it is calculated on a narrower circle of current assets. The least liquid part of them — inventories — is excluded from the calculation. The logic of such an exception is not only much less liquidity of stocks, but, which is much more important, and that the money that can be obtained in the event of the forced sale of inventories can be significantly lower than the cost of their acquisition.
According to international standards, the level of the quick ratio should be higher than one. In Russia, its optimal value is defined as 0.7 - 0.8. The need to calculate this ratio is due to the fact that the liquidity of certain categories of working capital is far from the same. It should also take into account the features of the application of this indicator in Russia, in our market conditions. The fact is that, as follows from the description of the formula, the most liquid current assets include not only cash, but also short-term securities and receivables. In a developed market economy, this approach is justified: short-term securities, by definition, are highly liquid assets; accounts receivable, firstly, is estimated net of potential bad debts, that is, only those debtors who can pay their debts to our company for one hundred percent are taken into account. Secondly, an enterprise in a developed market economy has a number of legislatively regulated opportunities by which it can collect debts from its client. Obviously, such conditions do not exist in the Russian economy. When analyzing the dynamics of this coefficient, it is necessary to pay attention to the factors that caused its change. So, if the growth of the quick ratio was mainly associated with the growth of unjustified receivables, then this cannot characterize the activities of the company on the positive side.
K SL \u003d (Cash + Short-term financial investments + Accounts receivable) / Short-term liabilities \u003d
Page 1260 + page 1240 + page 1230 / page 1500
Based on the foregoing, in the practice of Russian financial management, the quick ratio is rarely calculated. Most commonly applied absolute liquidity ratio, that is, the liquidity of the enterprise is estimated by the indicator of cash, which, as we know, have absolute liquidity. The optimal level of this coefficient in Russia is considered equal to 0.2 - 0.25. The absolute liquidity ratio (solvency) is the most stringent criterion for the liquidity of the enterprise and shows how much of the short-term borrowing obligations can be repaid immediately if necessary. Since the development of industry standards for these coefficients is a matter of the future, in practice it is advisable to analyze the dynamics of these indicators, complementing it with a comparative analysis of the available data for enterprises that have a similar orientation of their economic activity.
K al \u003d Cash / Short-term liabilities \u003d Page 1250 / p. 1500
An important indicator in the study, analysis of the liquidity of the enterprise is net working capital, the value of which is the difference between the current assets of the company and its short-term liabilities.
SOS \u003d Current assets - Short-term liabilities \u003d
Page 1200 - p. 1500
The value of own working capital characterizes that part of the enterprise’s own capital, which is the source of coverage of its current assets (i.e. assets with a turnover of less than one year). This calculated indicator depends on both the structure of assets and the structure of sources of funds. Other things being equal, the growth of this indicator in dynamics is considered as a positive trend. The main and constant source of increasing equity is profit. It is necessary to distinguish between “current assets” and “own working capital”. The first indicator characterizes the assets of the enterprise (section II of the asset of the balance sheet), the second - sources of funds, namely the part of the equity of the enterprise, considered as a source of coverage of current assets. The value of working capital is numerically equal to the excess of current assets over current liabilities. A situation is possible when the value of current liabilities exceeds the value of current assets. The financial situation of the enterprise in this case is considered unstable; immediate action is required to correct it.
Own working capital gives the company greater confidence in its own strengths. After all, it is he who helps the company out with the most diverse manifestations of the negative aspects of the market. For example: in case of delay in repayment of receivables or difficulties with the sale of products, depreciation or loss of working capital. The financial position of the enterprise is adversely affected by both a shortage and an excess of net working capital.
The lack of these funds may lead the company to bankruptcy, since it indicates its inability to timely repay short-term obligations. The disadvantage may be caused by losses in economic activity, the growth of bad receivables, the acquisition of expensive fixed assets without prior accumulation of funds for these purposes, the payment of dividends in the absence of appropriate profits, financial unpreparedness to pay off long-term obligations of the enterprise. A significant excess of net working capital over the optimal demand for it indicates an inefficient use of resources. Examples are: issuing shares or obtaining loans without a real need for them for the economic activities of the enterprise, irrational use of profits from economic activities.
The analysis of balance sheet liquidity carried out according to the above scheme is approximate. More detailed is the analysis of solvency using financial ratios.
Its assets provide information on the financial condition of such an enterprise in the short term. The purpose of the liquidity analysis is to determine the degree to which the liabilities of the enterprise are covered by its assets, the period for which they are converted into money corresponds to the maturity of the obligations. The shorter the time required to turn the assets into, the higher the liquidity of the assets. These indicators are derived in the interests of creditors, making it possible to assess the potential ability of the company to pay its obligations.
The liquidity of assets determines the solvency of the enterprise. Free cash should always be enough to pay off obligations. However, the company may prove to be solvent in the event of their partial or even complete absence, if it is able to quickly realize its non-monetary assets and pay off creditors. It is also possible provided that it is planned to provide liquidity with expected revenues. Thus, liquidity is an opportunity, in order to pay off obligations, to use available funds or quickly turn them into such funds or generate incomes just as quickly.
The solvency of the enterprise is interpreted as its ability in due time and to fully meet its obligations. The concept of liquidity is always associated with assets and liabilities, and the concept of solvency is associated with the enterprise as a whole. The system of indicators selected for assessing liquidity reflects the solvency of the enterprise at the balance sheet date, that is, its ability to pay off all liabilities today or in the not-too-distant future.
Unfortunately, liquidity ratios characterizing the financial situation as satisfactory do not always mean the same solvency. And although the concept of solvency is not identical to the concept of liquidity, in the analysis, one should still strive for a certain correspondence between them.
Maintaining an optimal liquidity position is based on the constant maintenance of the objectively necessary balance between the balance sheet.
The main criteria for assessing liquidity:
The amount of working capital
Shows the amount of equity, which is the source of coverage of current assets:
Ok \u003d Ta - That
Kol \u003d Ta / That
Where:
Ta is the value of current assets (including deferred expenses)
That is the amount of current liabilities (including deferred income). This ratio is calculated without taking into account the qualitative composition of current assets. Therefore, for the analysis of liquidity, taking into account the structure of current assets, the criteria below are used.
According to the analytical balance, the amount of current assets consists of three generalized articles:
1. cash, cash equivalents, short-term financial investments (easily realizable short-term securities);
2. current, including short-term received;
3. inventories, products in progress, goods and.
Therefore, you can imagine the same formula in a different form:
Kol \u003d (DS + Eds + KV + Dz + Z + RBP) / That
Where:
Kol - total liquidity ratio
DS - cash
KV - short-term investments
RBP - deferred expenses
That is current liabilities (including deferred income).
The last two of the three components of current assets (reserves and deferred expenses), as you know, the least liquid. Therefore, to clarify information about liquidity, an urgent liquidity ratio is used.
Quick liquidity
Reflects the liquidity of assets in case of need for urgent repayment of current liabilities.
It characterizes the expected solvency of the enterprise for a period equal to the average duration of one turnover of receivables:
Ksl \u003d (Ta - Z) / To
Where:
Ta - current assets
З - stocks (materials, products in the NZP stage, goods and finished products)
That is current liabilities.
Ksl \u003d (DS + Eds + KV + Dz) / That
Where:
Ksl - quick ratio
DS - cash
Eds - cash equivalents
KV - short-term investments
Dz - accounts receivable
That is current liabilities.
Critical liquidity
It characterizes the liquidity of assets in case of need for immediate repayment of current liabilities (at the balance sheet date). Reflects coverage of current liabilities with the most liquid assets:
Kkl \u003d Blah / That
Where:
Kcl - critical liquidity ratio
Blah - quick liquid assets (see item 1 of the structure of current assets)
That is current liabilities.
Otherwise, this formula can be represented as follows:
Kkl \u003d (DS + Eds + KV) / That
Where: Kcl - critical liquidity ratio
DS - cash
Eds - cash equivalents
KV - short-term investments
That is current liabilities.
Solvency recovery ratio
Shows the possibility (impossibility) of solvency recovery for n months. It is defined as the ratio of the estimated current liquidity ratio to its standard. The estimated current liquidity ratio is defined as the sum of the actual value of the current liquidity ratio at the end of the reporting period and the change in its value between the end and the beginning of this period in terms of the number of months allotted to restore solvency.
Quos \u003d (Ktlk + n- (Ktlk-Ktln)): Kntl
Where:
Quos - solvency recovery ratio
Ctl - the actual value of the current ratio at the end of the reporting period
n - number of months
Ktln - the actual value of the current ratio at the beginning of the reporting period
Kntl - regulatory current liquidity ratio.
The solvency recovery coefficient, which takes on a value greater than 1, indicates that there is a real opportunity to restore solvency, if less, it will most likely fail to restore it within the allotted time (n months).
Maneuverability of working (working capital) capital
Reflects the share of working capital, which falls on stocks, including work in progress and finished products. At the same time, it allows you to determine how much of the working capital currently remains in cash resources (including receivables).
Mrk \u003d Zap / (Ta - That)
Where:
MRK - maneuverability of working capital
Zap - stocks
Ta - current assets
That is current liabilities.
An acceptable value of this indicator is set individually for each enterprise and depends on the daily need for free cash.
Cash coverage ratio
In addition to the basic ratios that determine the liquidity and solvency of an enterprise, a modified absolute (critical) liquidity criterion is sometimes applied — the cash coverage ratio of accounts. With its help, it is determined how many times the available quick liquid assets (A1) can cover the average daily payments. And although this coefficient is calculated very simply, it is very difficult to give a uniform formula equally acceptable to all enterprises. The author here is limited only to the logic of calculation.
The first step is to determine the amount of payments made by the company for the period. For an enterprise that works evenly from period to period, does not conduct barter operations and works on the principle that everything that is produced is implemented, it will not be difficult to determine this value. It is enough to add up the sum of all expenses indicated in the statement of financial results, add tax payments for the period and subtract the amortization from the result. It does not matter that some payments related to the costs of this period are made in the previous, and some in the subsequent period, it is important that these are all payments that the company simply needs to make to support its core business. Next, the value of average daily payments is determined as the ratio of payments for the period to the duration of the period in days.
This is enough to determine the cash coverage ratio of accounts:
Quick liquid assets balance / Average daily payments \u003d Cash coverage ratio
When calculating this coefficient, not all quick liquid assets can be put in the numerator, but only cash. This is how the analyst decides. If there is a share of barter in the calculations, it must be determined and removed from the calculation when determining the amount of payments for the period. And also, if the cost of sales is not equal to the cost of production (that is, if incomplete products remain in the workshops, and unrealized finished products remain in the warehouses), which is typical for most enterprises, then the calculation also takes into account the increase in inventory and costs for the period . It may happen that in addition to payments related to operating activities, the company regularly makes other payments (repayment of loans, etc.). All this should also be considered. And in each case, the analyst should not use a ready-made formula, but his own logic.
Determination of an acceptable current ratio
According to international standards, the current (total) liquidity ratio should be in the range from one to two. The lower limit (1.0) is established based on the fact that the amount of working capital of an enterprise should at least cover the amount of short-term liabilities. The excess of the amount of current assets over the amount of short-term liabilities by more than two times may indicate an irrational balance sheet structure or an overestimation of the valuation of assets. But this does not mean at all that we should strive to bring it closer to the upper boundary (2.0), by all means. It is most reasonable to try to determine by calculation the value of the indicator of total liquidity normal for a given enterprise.
The conclusion about whether the available stock of liquid assets is sufficient can be made only taking into account the specifics of the activity of the analyzed enterprise. First of all, this concerns the difference in the frequency of receipt of payments on invoices presented to customers and the frequency of invoices for payment by suppliers.
When determining the norm of the indicator of total liquidity, one should proceed from two premises:
1. own funds, at least, should cover the least liquid elements of current assets; the rest of them can be financed from other sources in current liabilities;
2. that part of current liabilities that cannot be covered by receipts from buyers should be covered from own funds.
Therefore, the basis of the calculation should be an analysis of the structure of assets and an analysis of the relationship of the enterprise with suppliers and customers. It should also be associated with the calculation of an acceptable indicator of provision with own funds. Again, it should be borne in mind that acceptable liquidity indicators will be different in different conditions of the enterprise. Therefore, when changing the terms of settlements with suppliers / customers, when changing the organization of work with these counterparties, the rate of the indicator should be reviewed, accordingly, additional factors should be included in the analysis, or vice versa, excluding those factors that ceased to affect the supply and sales policy of the enterprise.
Calculated by division current assets for current liabilities (current liabilities). The source data for the calculation contains the company's balance sheet.
It is calculated in the FinEcAnalysis program in the Solvency Analysis block.
Coefficient of coverage of obligations - which shows
Shows the company's ability to repay current (short-term) obligations at the expense of only current assets. The larger the ratio, the better the solvency of the enterprise. This indicator takes into account that not all assets can be sold urgently.
Liquidity coefficients are of interest both for the management of the enterprise, and for external subjects of analysis:
- absolute liquidity ratio - for suppliers of raw materials;
- liabilities coverage ratio - for investors;
- quick ratio for banks.
Liabilities coverage ratio - formula
The general formula for calculating the coefficient:
K by \u003d | A1 + A2 + A3 |
P1 + P2 |
Coefficient of coverage of obligations - scheme
Was the page useful?
Synonyms
More about liabilities coverage ratio
- Analysis of the weighted average cost of invested capital in the value chain analysis system The coefficient for covering financial liabilities with a profit before interest and tax depreciation of 1 and below 1-3 3 and higher
- The effect of asset and liability turnover on an organization’s solvency Total solvency ratio ≥ 2 Net asset coverage ratio ≥ 1 Solvency ratio for a period ≥ 1 Ratio ratio
- Analysis of the value of estimated liabilities as the final stage of an integrated system of accounting for estimated liabilities of an organization A specific list of components is determined by the specifics of the enterprise, but in general, to effectively manage the value of estimated liabilities, it is recommended to analyze the value of estimated liabilities in the overall structure of the organization's balance sheet and compare it with industry average indicators; horizontal analysis of estimated liabilities analysis of short-term turnover estimated estimated liabilities obligations related costs Analysis of the value of estimated liabilities in the overall structure of the balance sheet
- General coverage ratio Synonyms current liquidity ratio general liquidity ratio Circulation ratio Debt coverage ratio Liabilities coverage ratio Debt coverage ratio is calculated in the FinEcAnalysis program in the Solvency analysis section shows
- Debt coverage ratio Synonyms current liquidity ratio general liquidity ratio general coverage ratio circulation ratio liabilities coverage ratio debt coverage ratio is calculated in the FinEcAnalysis program in the Solvency analysis section shows
- Analysis of the state and use of borrowed (attracted) capital on the basis of the accounting (financial) statements Cash and cash equivalents 26,438 20,213 63,199 42,986 36,761 312.7 239.0 7 Coefficient of maturity of urgent obligations solvency 0.66 0.60 0.85 0.25 0.19 x x 8. Volume produced
- General liquidity ratio Synonyms current liquidity ratio general coverage ratio circulation ratio debt coverage ratio liabilities coverage ratio debt coverage ratio calculated in the FinEcAnalysis program in the Solvency analysis section shows
- Conversion ratio Synonyms current liquidity ratio general liquidity ratio total coverage ratio debt coverage ratio debt coverage ratio debt coverage ratio is calculated in the FinEcAnalysis program in the Solvency analysis section shows
- Current liquidity ratio Synonyms general liquidity ratio general coverage ratio debt ratio debt coverage ratio debt coverage ratio is calculated in the FinEcAnalysis program in the Solvency analysis section shows
- Debt coverage ratio Synonyms current liquidity ratio general liquidity ratio total coverage ratio debt coverage ratio liabilities coverage ratio is calculated in the FinEcAnalysis program in the Solvency analysis section shows the formula value ratio
- Methodology for the analysis of the consolidation of the cash flow statement This indicator characterizes the corporation's ability to service liabilities as cash cover ratios considered earlier. Cash market activity ratios are used to evaluate the corporation.
- Comprehensive analysis of the financial condition of the educational institution Critical liquidity ratio of liabilities to creditors with cash and funds in settlements with debtors p 1 p 2 p 3 p 4 p 8 0.631 0.253 -0.378 11 Current liquidity ratio to cover liabilities to creditors with current working assets p 7 p 8 0.812
- A dynamic approach to the analysis of solvency of an enterprise D1 - coverage ratio of all liabilities in cash D2 - coverage ratio of interest payments in cash Coefficients
- Guidelines for the analysis of the financial condition of K9 organizations; coverage ratio of current liabilities with current assets; K10 equity in K11 turnover; share of equity
- Liquidity of companies' debts: a new tool for financial analysis DZd Od 8 This ratio shows the degree of coverage of long-term liabilities of the enterprise with its long-term receivables Normal value of liquidity ratio
- The modern methodology for analyzing liquidity of the balance sheet. The ability to cover short-term liabilities from financial investments of cash and cash equivalents. Liquidity ratio of reserves K5 K 0.5 - 0.7. The ability to cover short-term liabilities from stocks.
- Modern approaches to assessing the solvency of business entities. However, this does not mean a lack of cash to cover short-term liabilities. The cash flow adequacy ratio for covering short-term liabilities is quite acceptable as in
- Actual issues and current experience in analyzing the financial condition of organizations - part 4 Current liabilities 4 Coverage ratio gives an overall assessment of solvency It shows how many rubles of financial resources invested
- Features of the liquidity audit of the balance sheet of commercial organizations According to the balance sheet for the characteristics of the liquidity of an economic entity in the economic literature, it is recommended to calculate, as a rule, three relative indicators differing in the range of liquid assets considered to cover short-term liabilities; absolute liquidity ratio; intermediate coverage ratio; current liquidity ratio when calculating all
- Use of economic analysis methods in the diagnosis of financial insolvency By%% 17.437 25.604 22.418 8.167 146.84 -3.186 87.56 Ratios characterizing the debtor's business activity Return on assets Ra% 1.949 1.970 2.941 0.021 101.06 0.972 ... In 2011 34.2 % of short-term liabilities could be covered by liquid assets and in 2013 - 29.2% despite