Current liquidity balance sheet formula. Liquidity ratio: balance sheet formula and regulatory value
8 minutes to read Views 24 Posted on 06.24.2018
The term "liquidity" is used in relation to those assets of the company that can be realized at a high speed. The liquidity ratio is used to analyze the market value of assets and the speed of their sale. In simple words, the asset liquidity indicator clearly demonstrates the amount of time needed to convert assets into cash. Quite often, the term in question is referred to as the debt coverage ratio. In this article, we propose to talk about how to calculate the current ratio (KTL) and what this analytical tool shows.
Current liquidity ratio - calculated by dividing current assets into short-term liabilities (current liabilities)
What is the current ratio
The current liquidity ratio is an economic indicator that allows you to get information about the ratio of the property values \u200b\u200bof the company to debt obligations with a short-term nature. Using this analytical tool allows you to determine the level of solvency of the company for one reporting year. In order to make all the necessary calculations, it is necessary to obtain information about the assets available on the balance sheet of the company.
According to experts in the field of financial matters, a high index of this ratio clearly demonstrates the solvency of the organization.
Having answered the question of what the current liquidity ratio shows, we should proceed to consider areas where this analytical tool is used. These areas include:
- Evaluation of investment projects in order to reduce the risk of capital loss and determine the level of potential income.
- Analysis of the financial condition of the company by credit institutions acting as lenders. Using the considered analytical tool allows you to get information about the solvency of the client.
- Analysis of the company by various contractors. Quite often, business partners enter into an agreement on the provision of production raw materials and consumables in installments. In this situation, the supplier should receive guarantees of receiving financial resources during the agreed period of time.
In some situations, the indicator in question may lag significantly behind the established norm. In such a situation, the person conducting the analysis should obtain information on the coefficient of financial recovery . As a rule, a period of six months is used in the calculations.. Carrying out such calculations allows you to get information about the possibility of restoring the solvency of the company in the near future. For making forecasts, special economic formulas are used. According to many experts in this field, the use of the financial recovery ratio does not always provide accurate data.
When the indicator in question meets the established norm, the person conducting the analysis should calculate the indicator of a possible loss of solvency. This indicator allows you to get a forecast on the financial condition of the company for the next three months. The solvency loss ratio is used to prevent situations that may adversely affect the current value of assets.
When the amount of current liquidity exceeds the established standard, we can conclude that this company has a certain stock of capital, which was obtained through various external sources. From the point of view of the lender, companies with high current liquidity have a large fund consisting of working capital. If you evaluate the situation on the part of management, the high liquidity of assets indicates the unfocused and ineffective use of existing property. This property can be used to obtain the most favorable rates on loans and borrowings, which will significantly increase production capacity.
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During the economic analysis of the financial well-being of a business entity, it is imperative to take into account the absolute liquidity indicator. This index allows you to determine the amount of short-term debt that can be repaid in the near future. Using this analytical tool allows you to get the opportunity to abandon the sale of property values \u200b\u200bof the company in order to repay existing loans.
When calculating the size of the absolute liquidity ratio of assets, the following formula is applied: “(Financial resources + short-term investments) / current loans”. In order to use this formula, you should study the balance sheet in detail in order to obtain all the necessary information. This indicator is less popular in comparison with other tools of economic analysis. The overestimated value of this indicator indicates that the company is misallocating its financial fund.
As a rule, economic analysis is carried out at the end of the reporting year. This step allows you to determine the efficiency of use of the assets of the enterprise. In addition, the availability of such information allows a comparison with other reporting periods.
Characteristics of liquidity, degree
In order to characterize the assets stored on the balance sheet of the enterprise, an indicator is used that demonstrates the rate of conversion of assets into cash resources. All assets of the company are divided into several groups, differing in the degree of liquidity. Assets with a high degree of liquidity include financial resources and investment projects of a short-term nature. The second category includes quick-selling assets. This category includes receivables and loans to counterparties.
The third degree of asset liquidity combines the assets related to the “Reserves” item. This category also includes investment projects of a long-term nature. The last group is assets that are difficult to realize. As a rule, such assets are used to replenish domestic funds and authorized capital.
How to calculate the indicator
The normative value of the current liquidity ratio varies from two to three percent. When conducting an economic analysis, it is very important to take into account not only the coefficients obtained, but also the segment of market relations in which the enterprise is involved. According to experts, each market niche has its own specific features.
In the case when the KTL is equal to one or one and a half percent, there is a high probability of difficulties arising with the repayment of existing debt obligations. It is important to note that this value is the norm for companies operating in the retail sector. In the case of such companies, KTL is blocked by an impressive stream of financial resources received from trade and operating activities.
When KTL is below the norm by several values, there is a high risk that the company will not be able to cover all existing debts. Exceeding the normative value clearly demonstrates the ineffective use of assets.
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According to the formula (old and new)
To calculate the indicator in question, the formula “Current assets / current debt” is used. As mentioned above, KTL is the ratio of assets used in circulation and financial liabilities with a short-term nature. To obtain the necessary information, it is necessary to take all the data stored in the form of a balance sheet.
The considered indicator can be calculated by the formula: "(A1 + A ... + A3) / (P1 + P2) \u003d Ktl." To obtain information about the current liquidity ratio of assets, it is necessary to add all current assets of the company. The result should be divided by the sum of all short-term financial liabilities.
By balance
In addition to the above calculation methods, you can use the balance line. The current ratio, the balance sheet formula is as follows:
"(P1200 + p1170) / (p1500-1530-1540) \u003d Ctl."
To compile these calculations, the first form of the balance sheet is used.
Normative values
Timely economic analysis of the financial condition of the company allows you to prevent possible losses and take measures to improve the enterprise. For this purpose, employees of the financial department must constantly study the current state of affairs. As mentioned above, the ratio of assets to short-term financial liabilities should be equal to two percent. This indicator indicates the availability of working capital, the size of which is two times higher than the company's debt. In such a situation, any changes in the market will not affect the well-being of the company.
Assessment of financial condition
During the assessment, the fact of exceeding the normative value can be revealed. It should be noted that this phenomenon is observed quite rarely. Exceeding the regulatory value of KTL means that the company has many demanded assets that are misused. This factor contributes to lower income compared to the full utilization of assets.
Due to the high demand for its assets, the company has the opportunity to sell them at inflated prices. The funds received should be used to acquire more assets less in demand.
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Negative indicators
A drop in liquidity is cause for concern. In such a situation, the head of the company needs to engage the company's marketers as much as possible. Another way to adjust the situation is to quickly sell assets. In order to be able to predict market behavior, you should turn to experienced analysts. Experts in this field are able to predict recession times and consumer demand. This factor should be used for profit.
A drop in KTL to one percent indicates the presence of significant risks. In practice, upward dynamic growth is quite rare. From the foregoing, we can conclude that a significant drop in the current ratio shows that the company is on the verge of bankruptcy.
How to increase the coefficient
Based on the foregoing, we can conclude that the current liquidity indicator clearly demonstrates the level of solvency of the company on existing debt obligations. The growth in financial condition allows you to reduce the amount of borrowed capital by obtaining more profitable loan offers. This factor contributes to an increase in the size of the company's net revenue and an increase in the company's profitability.
There are several effective methods for increasing the KTL indicator:
- The introduction of additional current assets.
- Reducing the volume of current debt by restructuring a loan based on netting or deducting unclaimed loans.
- The introduction of additional assets used in circulation in order to simultaneously reduce current debt.
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Conclusions (+ video)
The considered tool of economic analysis allows you to get complete control over the financial condition of the company. An increase in the current liquidity ratio allows attracting large investment companies to business development. This step allows you to get additional financial resources that can be used to develop new market segments and increase the profitability of the company itself.
In contact with
The financial stability of the enterprise is assessed by several indicators. One of the key is the current ratio. This is the ratio of short-term assets to short-term liabilities, showing whether the company quickly wraps up funds. It is optimal that its value be in the range of 1-2.5.
The financial stability of the company allows you to evaluate the current ratio. This is a demonstration of solvency, the indicator says whether the company is able to meet short-term obligations.
Why count?
The indicator is not needed when conducting accounting, tax or management accounting. It is necessary to consider it to confirm solvency to investors or banks. In some cases, it will come in handy when negotiating with suppliers.
Banks on the indicator assess the solvency of the enterprise and decide on the issuance of loans.
Investors need it to assess the return on investment and the timing of profit.
However, a small business needs an indicator more for self-testing:
Formula for calculating
To calculate the current ratio, several formulas are used. The whole point boils down to one thing: the ratio of current assets to short-term liabilities is found. Data is taken from the balance sheet:
Coeff. tl \u003d Ao / Ok, where
Ao - current assets (total of section II of the balance sheet);
Ok - short-term liabilities (total of section V of the balance sheet).
Ao - the sum of three types of assets:
- quick-moving (cash on hand, funds in the current account, investments in securities);
- quickly sold (shipped goods, funds on deposits, debt of debtors for up to 12 months);
- for the implementation of which time is required (VAT, debt of debtors with payments of a year).
OK - the amount of current liabilities:
- debt to suppliers;
- wage arrears;
- tax arrears;
- short-term loans and borrowings.
A more detailed calculation on the example of OAO Gazprom is shown in the video:
Output: The company is financially stable.
For a complete picture, compare it with another company.
Output: The liquidity ratio is within the normal range, however, given that it is an industrial enterprise, 1.88 indicates insufficient liquidity. The company is less stable than the previous example.
Possible Values
A factor of 1 to 2.5 is considered normal. If it is within these limits, then the company spends money rationally and can be liable for obligations.
However, the lower and upper threshold depends on the field of activity. For trading companies, 1 is close to normal, as they have many short-term loans. However, for industry this value is critical, because they have a large volume of work in progress and a lot of stocks.
The average critical values \u200b\u200bfor most enterprises:
- less than 1 - the company cannot pay bills;
- more than 2.5 - the company is wasting money.
The dynamics of the coefficient for the company Transneft:
Too high an indicator also indicates a long term turnover of funds.
The excess of short-term assets over liabilities indicates the availability of stocks. And their company can send for damages. The reverse situation indicates liquidity problems and inability to meet obligations.
How to increase the coefficient?
There are 2 ways to do this:
- reduce accounts payable;
- increase current assets.
The coefficient may be needed to calculate other indicators of the company.
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.
Current ratio - 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;
- current ratio - for investors;
- quick ratio for banks.
Current ratio - formula
The general formula for calculating the coefficient:
Current ratio - scheme
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Synonyms
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1) Current (total) liquidity ratio - financial ratio equal to the ratio of current (current) assets to short-term liabilities (current liabilities). This is the most common and frequently used liquidity indicator. Ctl \u003d OA / KO
The coefficient reflects the company's ability to repay current (short-term) liabilities at the expense of only current assets. The larger the indicator, the better the solvency of the enterprise. A coefficient value of 2 or more is considered normal (this value is most often used in Russian regulations; in world practice it is considered normal from 1.5 to 2.5, depending on the industry). A value below 1 indicates a high financial risk due to the fact that the company is not able to consistently pay current bills. A value of more than 3 may indicate an irrational capital structure.
2) Quick ratio - financial ratio equal to the ratio of highly liquid current assets to short-term liabilities (current liabilities). The data source is the company's balance sheet in the same way as for current liquidity, but the inventory does not include inventories, as their forced sale will result in maximum losses among all current assets.
Kbl \u003d (Short-term receivables + Short-term financial investments + Cash) / Current liabilities
The coefficient reflects the company's ability to repay its current obligations in case of difficulties with the sale of products.
A coefficient value of at least 1 is considered normal.
3) Absolute liquidity ratio - a financial ratio equal to the ratio of cash and short-term financial investments to short-term liabilities (current liabilities). The data source is the company's balance sheet in the same way as for current liquidity, but only cash and essentially similar assets are taken into account in the composition of assets:
Cal \u003d (Cash + short-term financial investments) / Current liabilities
Unlike the two above, this coefficient is not widely used in the West. According to Russian regulations, a coefficient value of at least 0.2 is considered normal.
48. Criteria for crisis management
Evaluation of the effectiveness of crisis management is carried out according to the following system of criteria:
Achieved a change in the most important indicators of economic and financial activity and the financial condition of the enterprise during the crisis management period (compared with the beginning of the implementation of anti-crisis procedures);
The rate of obtaining positive changes per unit time, i.e. the increase in the generalized indicators of management obtained in one time interval (week, month, quarter);
The cost-effectiveness of obtaining a positive effect, the measurement of which is the ratio between the achieved growth in the results of economic and financial activities and the amount of expenses associated with achieving this effect (the combined assessment of the costs of conducting pure anti-crisis management and the cost of additional resources raised);
The sufficiency of changes to restore the parameters of the viability of the enterprise, which is assessed by comparing the actually achieved indicators with the reference (target) values \u200b\u200bat which the viable state of the enterprise is ensured.
Criteria can become the basis for constructing a system of local and general indicators of anti-crisis management effectiveness, with the help of which alternative anti-crisis proposals can be evaluated and conclusions can be drawn about the effectiveness of the enterprise crisis management system as a whole.
The balance sheet is the main form of financial statements that characterizes the financial position of the organization as of the reporting date (paragraph 18 of PBU 4/99). In addition, the balance sheet acts as an information base for analysis, during which various factors are determined, and as a result, management decisions are made. One of the areas of analysis of this reporting form is the analysis of liquidity balance. Recall that liquidity is their ability to turn into money. Accordingly, the higher the rate of such a transformation, the assets are considered more liquid. The organization’s completely liquid assets are money. Let's talk about the main ratios calculated in assessing the liquidity of the balance sheet.
Group assets by liquidity
Analysis of liquidity balance sheet begins with determining the degree of liquidity of certain assets. For this purpose, the organization’s assets are divided into 4 groups - from the most liquid to difficult to sell assets. Imagine this grouping in the table:
Within the selected groups, the liquidity of an organization’s assets may be conducted.
Balance sheet liquidity ratios
When calculating liquidity indicators, the value of assets is related to the amount of liabilities in the liability of the balance sheet.
For the liquidity ratio, the formula for the balance sheet may be as follows (Order of the Ministry of Finance of 02.07.2010 No. 66n):
K AL \u003d (line 1240 + line 1250) / (line 1510 + line 1520 + line 1540 + line 1550)where K AL - absolute liquidity ratio;
line 1510 - “Borrowed funds”;
line 1520 - “Accounts payable”;
line 1540 - “Provisions”;
line 1550 - “Other liabilities”.
Absolute liquidity ratio shows the organization's ability to repay its current liabilities at the expense of the most liquid assets. The standard value of K AL e 0.2.
When it is necessary to determine the ability of an organization to repay its current liabilities at the expense of the most liquid and quickly sold assets, it is calculated by the quick liquidity ratio (K BL), the recommended value for which is from 0.7 to 1:
To BL \u003d (line 1210 + line 1230 * + line 1240 + line 1250 + line 1260) / (line 1510 + line 1520 + line 1540 + line 1550)* line 1230 - in terms of short-term receivables.