One of the indicators of the firm's performance is the level of liquidity. According to it, the creditworthiness of the organization is assessed, its ability in full and to pay off obligations on time. More details about what liquidity ratios exist, formulas for the new balance for calculating each indicator are presented in the article below.
The essence
Liquidity is the degree to which the firm's assets are covered by the liabilities. The latter are divided into groups depending on the period of conversion into cash. According to this indicator, the following is estimated:
- the firm's ability to respond quickly to financial problems;
- the ability to increase assets with an increase in sales;
- the ability to repay debts.
Liquidity levels
Insufficient liquidity is expressed in the inability to pay debts and obligations. You have to sell fixed assets, and in the worst case, liquidate the organization. The deterioration of the financial situation is expressed in a decrease in profitability, loss of capital investments of owners, delay in payment of interest and part of the principal debt on the loan.
The quick liquidity ratio (the formula for the balance for the calculation will be presented below) reflects the ability of the economic object to pay off the debt at the expense of the available funds in the accounts. Current solvency can affect relationships with customers and suppliers. If the company is not able to pay off the debt on time, its continued existence is in doubt.
Any liquidity ratio (the formula for the balance for the calculation will be presented below) is determined by the ratio of assets and liabilities of the organization. These indicators are divided into four groups. In the same way, any liquidity ratio (the formula for the balance sheet for the calculation is needed to analyze the activity) can be determined separately for quickly and slowly realizable assets and liabilities.
Assets
Liquidity is the ability of an enterprise's property to generate a certain income. The speed of this process just reflects the liquidity ratio. The formula for the balance for calculations will be presented below. The larger it is, the better the company “stands on its feet”.
Let's rank assets according to the speed of their transformation into cash:
- money in accounts and cash desks;
- bills, treasury securities;
- outstanding debts to suppliers, loans issued, the Central Bank of other enterprises;
- stocks;
- equipment;
- structures;
Now we will distribute assets by groups:
- A1 (the most liquid): funds on hand and in a bank account, shares of other companies.
- A2 (fast selling): short-term debt of counterparties.
- A3 (slow-moving): reserves, WIP, long-term financial investments.
- A4 (hard to sell) - non-current assets.
A specific asset belongs to a particular group, depending on the degree of use. For example, for a machine-building plant, a lathe will be classified as "inventory", and a unit made specifically for an exhibition will be classified as non-current assets with a life of several years.
Liabilities
The liquidity ratio, the balance sheet formula of which is presented below, is determined by the ratio of assets to liabilities. The latter are also divided into groups:
- P1 - the most demanded obligations.
- P2 - loans with a term of up to 12 months.
- P3 - other long-term loans.
- P4 - reserves of the enterprise
The lines of each of the listed groups must match the degree of asset liquidity. Therefore, before making calculations, it is advisable to modernize the financial statements.
Balance sheet liquidity
For further calculations, it is necessary to compare the monetary values of the groups. In this case, the following ratios must be met:
- A1> P1.
- A2> P2.
- A3> P3.
- A4< П4.
If the first three of the listed conditions are met, then the fourth will be fulfilled automatically. However, the lack of funds for one of the groups of assets cannot be compensated for by an overabundance of the other, since fast-moving funds cannot replace slow-moving assets.
In order to conduct a comprehensive assessment, the total liquidity ratio is calculated. Balance Formula:
L1 = (A1 + (1/2) * A2 + (1/3) * A3) / (P1 + (1/2) * P2 + (1/3) * P3).
The optimal value is 1 or more.
The information presented in this way is not abundant in details. A more detailed calculation of solvency is carried out according to a group of indicators.
Current liquidity
The ability of a business entity to pay off short-term liabilities at the expense of all assets shows the current liquidity ratio. Balance formula (line numbers):
Ktl = (1200 - 1230 - 1220) / (1500 - 1550 - 1530).
There is also another algorithm by which the current liquidity ratio can be calculated. Balance Formula:
K = (ОА - long-term DZ - debts of founders) / (short obligatory) = (A1 + A2 + A3) / (Π1 + Π2).
The higher the value of the indicator, the better the solvency. Its standard values are calculated for each industry, but on average fluctuate between 1.49-2.49. A value less than 0.99 indicates the inability of the enterprise to settle on time, and more than 3 - a high proportion of unused assets.
The ratio reflects the solvency of the organization, not only at the moment, but also in extraordinary circumstances. However, it does not always provide the full picture. For trade enterprises, the value of the indicator is less than the normative one, and for industrial enterprises it is most often higher.
Urgent liquidity
The ability of a business entity to pay off liabilities at the expense of quickly realizable assets less inventory reflects the quick liquidity ratio. Balance formula (line numbers):
Ksl = (1230 + 1240 + 1250) / (1500 - 1550 - 1530).
K = (short DZ + short financial investment + DS) / (short loans) = (A1 + A2) / (Π1 + Π2).
In the calculation of this ratio, like the previous one, stocks are not taken into account. From an economic point of view, the sale of this group of assets will bring the most losses to the company.
The optimal value is 1.5, the minimum is 0.8. This indicator reflects the proportion of liabilities that can be covered by cash receipts from current activities. To increase the value of this indicator, one should increase the volume of own funds and attract long-term loans.
As in the previous case, the value of the indicator above 3 indicates an irrationally organized capital structure, which is caused by the slow turnover of stocks and the growth accounts receivable.
Absolute liquidity
The ability of a business entity to pay off debt at the expense of cash reflects. Balance formula (line numbers):
Cal = (240 + 250) / (500 - 550 - 530).
The optimal value is more than 0.2, the minimum is 0.1. It shows that the organization can repay 20% of urgent obligations immediately. Despite the purely theoretical probability of the need for urgent repayment of all loans, it is necessary to be able to calculate and analyze the absolute liquidity ratio. Balance Formula:
K = (short-term financial investments + DS) / (short-term loans) = A1 / (Π1 + Π2).
The calculations also use the critical liquidity ratio. Balance Formula:
Kl = (A1 + A2) / (P1 + P2).
Other indicators
Capital flexibility: A3 / (AO - A4) - (P1 + P2).
Its decrease in dynamics is considered as positive factor as part of the funds frozen in inventories and receivables is released.
Share of assets in the balance sheet: (balance sheet total - A4) / balance sheet total.
Provision with own funds: (P4 - A4) / (AO - A4).
The organization must have at least 10% of its own funding sources in the capital structure.
Net working capital
This indicator reflects the difference between current assets and loans, accounts payable. This is the part of the capital that is formed at the expense of long-term loans and own funds. The formula for the calculation is:
Net capital = OA - short-term loans = line 1200 - line 1500
The excess of current assets over liabilities indicates that the company is able to pay off debts, has reserves for expanding its activities. The normative value is greater than zero. Flaw working capital indicates the inability of the organization to repay obligations, and a significant excess indicates the irrational use of funds.
Example
The balance of the enterprise includes:
- Cash (DS) - 60,000 rubles.
- Short-term investments (KFV) - 27,000 rubles.
- Accounts receivable (DZ) - 120,000 rubles.
- OS - 265 thousand rubles.
- Intangible assets - 34 thousand rubles.
- Stocks (PZ) - 158,000 rubles.
- Long-term loans (KZ) - 105,000 rubles.
- Short-term loan (CC) - 94,000 rubles.
- Long-term loans - 180 thousand rubles.
Cal = (60 + 27) / (105 + 94) = 0.4372.
The optimal value is more than 0.2. The company is able to pay 43% of its liabilities at the expense of funds in a bank account.
Let's calculate the quick liquidity ratio. Balance Formula:
Ksl = (50 + 27 + 120) / (105 + 94) = 1.09.
The minimum value of the indicator is 0.80. If the company uses all available funds, including debts, this amount will be 1.09 times more than the existing liabilities.
Let's calculate the critical liquidity ratio. Balance Formula:
Kl = (50 + 27 + 120 + 158) / (105 + 94) = 1.628.
Interpretation of results
By themselves, the coefficients do not carry a semantic load, but in the context of time intervals, they characterize in detail the activities of the enterprise. Especially if they are supplemented by other calculated indicators and a more detailed examination of assets that are accounted for in a specific line of the balance sheet.
Illiquid inventory cannot be quickly sold or used in production. They should not be taken into account when calculating current liquidity.
In an organization that is part of a holding group, indicators of internal receivables and payables are not taken into account when calculating the liquidity ratio. It is better to determine the level of solvency according to the data of the absolute liquidity ratio.
Overvaluation of assets will cause many problems. The inclusion in the calculation of the collection of an unlikely debt leads to an incorrect (reduced) assessment of solvency, obtaining inaccurate data on financial situation organizations.
On the other hand, with the exclusion of assets from the calculations, the probability of receiving income from which is low, it is difficult to achieve the standard values of liquidity indicators.
43. Liquidity ratios: current, urgent and absolute.
Liquidity- the ability of assets to be quickly sold at a price close to the market price. Liquidity is the ability to turn into money.
Current liquidity
Current (total) liquidity ratio (coverage ratio; English current ratio, CR) is a financial ratio equal to the ratio of current (current) assets to short-term liabilities (current liabilities).
Ktl = (OA - DZd) / KO, where: Ktl - current liquidity ratio; ОА - current assets; ДЗд - long-term accounts receivable; KO - short-term liabilities.
The ratio reflects the company's ability to pay off current (short-term) liabilities at the expense of current assets only. The higher the indicator, the better the company's solvency.
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 associated with 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.
Fast (urgent) liquidity
- financial ratio equal to the ratio of highly liquid current assets to short-term liabilities (current liabilities). The source of the data is the company's balance sheet in the same way as for current liquidity, but inventories are not taken into account in the composition of assets, since when they are forced to sell, the losses will be the maximum among all circulating assets.
Kbl = (Short-term receivables + Short-term financial investments + Cash) / Current liabilities
The ratio reflects the company's ability to pay off its current liabilities in the event of difficulties with the sale of products.
A coefficient value of at least 1 is considered normal.
Absolute liquidity
Absolute liquidity ratio- financial ratio equal to the ratio Money and short-term financial investments to short-term liabilities (current liabilities). The source of the data is the company's balance sheet in the same way as for current liquidity, but only cash and funds close to them are taken into account in the composition of assets:
Cal = (Cash + short-term financial investments) / Current liabilities
Unlike the two above, this coefficient is not widespread in the west. According to Russian regulations, a coefficient value of at least 0.2 is considered normal.
44. Forecasting indicators of solvency.
When deciding on the attraction of credit resources, it is necessary to determine the creditworthiness of the enterprise.
At the present stage, the following coefficients have been adopted:
Current liquidity ratio (coverage), K p;
Coefficient of provision with own circulating assets, K os;
Coefficient of restoration (loss) of solvency, K uv.
These indicators are calculated according to the balance sheet according to the following formulas:
Coefficient K p characterizes the overall provision of the enterprise with circulating assets for maintaining economic activity and timely repayment of urgent obligations of the enterprise.
Coefficient Kv shows the existence of a real opportunity for an enterprise to restore or lose its solvency within a certain period. The basis for recognizing the structure of the balance sheet as unsatisfactory, and the enterprise insolvent is the fulfillment of one of the following conditions:< 2 или К ос >0.1. It should be remembered that when deciding on a loan in a bank or other credit institution, the following system of financial ratios is calculated:
Absolute liquidity ratio K al;
Intermediate coverage ratio K pr;
General coverage ratio K p;
Independence coefficient К n.
The absolute liquidity ratio shows the proportion of short-term liabilities that can be repaid at the expense of highly liquid assets and is calculated using the formula, the standard value of the indicator is 0.2 - 0.25:
The intermediate coverage ratio shows whether the company will be able to pay off its short-term debt obligations on time. It is calculated using the formula:
The calculation of the overall coverage ratio is similar to the determination of the current liquidity ratio. The financial independence ratio characterizes the provision of an enterprise with its own funds for carrying out its activities. It is defined by the attitude equity capital to the balance sheet and is calculated as a percentage.
The optimal value, providing a fairly stable financial position in the eyes of investors and creditors: 50 - 60%.
45. Own and borrowed resources of the enterprise
Borrowed and own funds of the enterprise - in the aggregate, determine the liquidity of its assets, and directly affect the amount of financial and other funds that provide an opportunity for their use, at a particular moment or period of time.
Borrowed funds allow the enterprise to increase production, turnover, get additional profit and even pay off previous debts and much more.
In addition to borrowed funds, in order to obtain certain financial advantages, an enterprise can also use borrowed funds, which, unlike borrowed ones, do not actually return - for example, equity shares and gratuitous government funding.
Ordinary entrepreneurs can also actively use borrowed funds. State policy of the Russian Federation for the development of entrepreneurial activity, by means of attracting borrowed funds from various sources, provides for the receipt of interest-free loans, in accordance with applicable law. In addition, such loans are not taxed.
Taxes will be only on the income received, in the case of a cash loan - in the case of a clothing loan, the material benefit is not calculated. You can use borrowed funds constantly or regularly, if it is effective and has a stable profit, or is a necessity.
However, it is advisable to follow very closely and pay attention to debt to equity ratio and maintain a clearly defined balance - it is good to have a certain strategy of action in case of unforeseen circumstances, since in the case of using borrowed funds, there is a certain threshold of financial losses, after crossing which you will not be able to restore your business immediately or through certain time go bankrupt.
Here, you also need to take into account - equity and debt ratio- approximately it can be calculated by dividing total amount existing loans and interest accrued on them on total assets and future income.
The value of this ratio will be, one of the fundamental factors in providing you with loans, that is, the lower the ratio, the more likely it is to get a loan.
In general, it is advisable to use gratuitous and especially repayable borrowed funds only when you are already well on your feet and understand your business segment.
Now, the state legislation of the Russian Federation provides for gratuitous subsidies for opening a private business, in the form of partial financing of the initial capital - but after all, it does not provide guarantees of the success of its development.
Absolute liquidity ratio (Cash ratio)
Definition
Absolute (cash) liquidity ratio(cash ratio) shows the ratio of the organization's most liquid assets - cash and short-term financial investments - to short-term liabilities.
The absolute liquidity ratio is a variation of two other more common liquidity ratios: the current liquidity ratio and the quick liquidity ratio. At the same time, in the calculation of this indicator, only the fastest-selling (liquid) assets are used.
Calculation (formula)
The coefficient is calculated as follows:
Absolute liquidity ratio = (Cash + Short-term financial investments) / Current liabilities
All components of the formula are taken from the balance sheet of the organization.
Normal value
The absolute liquidity ratio is not as popular as the current and quick liquidity ratios and does not have a well-established norm. Most often, a value of 0.2 or more is used as a reference point for the normal value of the indicator. However, a too high value of the coefficient indicates unreasonably high volumes of free cash that could be used for business development.
Read about the cash liquidity ratio in English in the article " Cash Ratio".
Current ratio
Definition
Current (total) liquidity ratio(current ratio) is a measure of the organization's solvency, the ability to repay the organization's current (up to a year) liabilities. Lenders widely use this ratio in assessing the current financial position of an organization, the danger of issuing short-term loans to it. In Western practice, the ratio is also known as the working capital ratio.
Calculation (formula)
The current liquidity ratio is calculated as the ratio of current assets to short-term liabilities:
Current liquidity ratio = Current assets / Short-term liabilities
The numerator of the formula is taken from the balance sheet asset, the denominator from the liability.
Normal value
The higher the value of the current liquidity ratio, the higher the liquidity of the company's assets. A coefficient value of 2 or more is considered normal. However, in world practice, it is allowed to reduce this indicator for some industries to 1.5.
A low value of the ratio (below 1) indicates probable difficulties in repaying the organization of its current liabilities. However, to complete the picture, you need to look at the cash flow from the operating activities of the organization - often a low ratio is justified by a strong cash flow (for example, in fast food chains, retail trade).
Too high current liquidity ratio is also undesirable, since it may reflect insufficient efficient use current assets or short-term financing. In any case, lenders prefer to see a higher ratio as a sign of a firm's standing.
Read about the current liquidity ratio in English in the article " Cash Ratio".
Quick ratio
Definition
Quick ratio(quick ratio, acid-test ratio) characterizes the organization's ability to pay off its short-term liabilities by selling liquid assets. At the same time, liquid assets in this case include both cash and short-term financial investments and short-term receivables (according to another version - all current assets, except for their least liquid part - stocks). The quick liquidity ratio has become widespread in Russian and world practice, along with the current liquidity ratio.
Calculation (formula)
The quick ratio is calculated by dividing liquid assets by short-term liabilities:
Quick liquidity ratio = (Cash + Short-term financial investments + Short-term receivables) / Short-term liabilities
According to another version:
Quick Ratio = (Current Assets - Inventories) / Current Liabilities
Inventories are considered the least liquid assets, they are considered to be the most difficult to convert into cash (i.e. sell), so they are not included in the calculation anyway.
Normal value
The higher the quick ratio, the better the financial position of the company. A value of 1.0 or higher is considered the norm. At the same time, the value may differ for different industries. If the ratio is less than 1, liquid assets do not cover short-term liabilities, which means there is a risk of loss of solvency, which is a negative signal for investors.
Absolute liquidity ratio
BALANCE
13.04.09
1. enlargement of the interval;
2. folding the moving average;
3. analytical alignment.
The method of aggregation of intervals is used to identify the trend of time series, where the main development trend is distorted by random deviations. The essence of the method: the transition from the initial series of dynamics to the series of longer periods. For example, from months to quarters. As a result of the enlargement of the intervals, the general trend becomes more noticeable.
As a result of the enlargement of the interval, the general trend in the development of trade turnover becomes obvious:
1. the turnover increases from year to year;
2. the turnover of the second half of the year annually exceeds the turnover of the first half of the year;
3. the turnover of the IV quarter is the highest;
4. the turnover of the first half of the following year is always less than the turnover of the second half of the previous year;
5. the turnover of the half-years of the same name is increasing from year to year.
Moving average smoothing... The essence of the method lies in the fact that, according to the initial values of this series, the calculated (theoretical values) are determined, in which random deviations are partially extinguished and the main development trend is revealed more clearly in the form of some smooth line. For the calculation, it is necessary to determine the links of the moving average. The number of levels in each link should be a year in duration, that is, for a quarterly series - a four-level link, for a monthly series - a twelve-level link. The calculation consists in determining the average value for each link. At the same time, when calculating each new moving average, one level is discarded from the left and one level is attached to the right.
For the quarterly row:
Let's consider the calculation of moving averages
| Period (year, quarter) | Baseline levels (T / O) | Moving averages | Smoothed centering levels | Percentage ratio |
| I quarter. 2006 | 200,7 | 209,8 | 95,7 | |
| II quarter. 2006 | 230,2 | 239,1 | 224,5 | 102,5 |
| III quarter. 2006 | 198,4 | 250,9 | 245,0 | 81,0 |
| IV quarter. 2006 | 327,2 | 250,1 | 250,5 | 130,6 |
| I quarter. 2007 | 247,8 | 266,6 | 258,35 | 95,9 |
| II quarter. 2007 | 227,1 | 256,6 | 261,6 | 86,8 |
| III quarter. 2007 | 264,4 | 254,7 | 255,65 | 103,4 |
| IV quarter. 2007 | 287,1 | 260,6 | 257,65 | 111,4 |
| I quarter. 2008 | 240,2 | 266,9 | 263,75 | 91,1 |
| II quarter. 2007 | 250,8 | 291,1 | 279,0 | 89,9 |
| III quarter. 2008 | 289,5 | 308,0 | 299,55 | 96,6 |
| IV quarter. 2008 | 383,7 | 336,6 | 322,3 | 119,1 |
Missing averages for IQ. 2006 and III, IV kV. 2008 calculated by reducing the number of link levels
To smooth out the influence of random factors, we will center the moving averages, adding them in pairs and, in turn, finding their average.
We find percentage actual members of the original series to corresponding levels moving averages.
The seasonality index is determined:
Similarly, we find
V this example the moving average method is used to analyze the seasonality of turnover.
A similar analysis can be performed using simple average method... In this case, the following algorithm is used to calculate the seasonality index:
When calculating the seasonality index using moving averages, the general trend of an increase in trade turnover from year to year is taken into account, and therefore the calculated nature of seasonality is smoother - I – III quarter is approximately the same. When calculating by the method of simple averages, the tendency for T / O to increase from quarter to quarter is more pronounced, since the general trend of T / O growth is superimposed on the quarterly seasonality.
Analytical alignment method... It consists in determining the equation of the approximating general trend changes in experimental values. For example, equations of a straight line or equations of a parabola, as was done earlier. The seasonality index is defined as the ratio of the actual values of the members of the series to their calculated value determined by the equation. The indices obtained in this way are averaged over quarters or months.
ANALYSIS OF THE FINANCIAL CONDITION OF THE ENTERPRISE
Analysis of the financial condition of the enterprise is one of the main components economic analysis activities of the enterprise.
Depending on the purpose of the subjects of analysis, an external or internal analysis of financial and statistical reporting is carried out. As a rule, the users and subjects of external analysis are creditors, investors, business counterparties (suppliers, buyers), tax authorities, etc. External analysis focuses mainly on open and transparent financial statements enterprises.
The purpose of the internal analysis carried out by the managers and owners of the enterprise is to assess the strengths and weaknesses of the financial and economic activities of the enterprise and to determine the prospects for its development.
The main stages of the analysis of the financial and economic condition
1. Collection of information and processing of financial statements.
2. Analysis of the composition, structure of the property of the enterprise and the sources of its formation.
3. Analysis of liquidity and solvency.
4. Analysis of financial independence, sustainability and stability of activities.
5. Analysis of indicators of business activity, profitability, price competitiveness, strategy and tactics of development.
6. Analysis of the insolvency (bankruptcy) of the enterprise.
8. Development of measures to improve the financial and economic activities of the enterprise.
Stage 1. Collection of information and processing of financial statements
The analysis is based on financial and statistical reporting. The annual financial (accounting) statements of enterprises consist of 5 main forms:
1. Balance sheet (F1).
2. Profit and loss statement (F2).
3. Statement of changes in equity (F3).
4. Statement of cash flows (Form 4).
5. Appendix to the balance sheet (Form 5).
The most informative for the analysis and assessment of the financial condition is form No. 1 (balance sheet). The balance contains a summary of the state information household funds organizations belonging to Assets and the sources of their education, constituting Passive... This information is presented at the beginning and end of the period (quarter, year), which makes it possible to compare indicators and identify trends in their change (growth or decline). In the Russian Federation, the asset of the balance sheet is built in the order of increasing speed of transformation of these assets in the process of economic activity into monetary form, that is, in ascending order of the degree of liquidity of assets.
In the liabilities of the balance sheet, the grouping of articles is given on a legal basis, that is, all the obligations of the enterprise are divided by subjects: to the owners of the enterprise; to third parties (creditors). In turn, the external liabilities of the enterprise (borrowed capital, debts) are divided into long-term (over 1 year) and short-term (up to 1 year). Liabilities items are grouped according to their maturity in ascending order. In the first place is the "Authorized Capital" as the most constant part of the balance sheet. It is followed by the rest of the articles.
To illustrate the methodology for the subsequent analysis of the financial condition, we present the analytical balance sheet of an enterprise. For simplicity, a number of non-main items of the balance sheet have not been shown.
| Assets | Thousand. rub. | Passive | Thousand. rub. |
| I. Non-current assets, including: Intangible assets Fixed assets | III. Capital and reserves, including share capital Retained earnings | ||
| II. Current assets, including Inventories Accounts receivable, including Long-term debt Short-term Short-term financial investments Cash Other current assets | - - | IV. Long-term liabilities, including loans and credits | |
| V. Short-term liabilities, including Loans and credits Accounts payable Other short-term liabilities | |||
| Total Asset: | Total Liabilities |
Stage 2. Analysis of the composition, structure of property and sources of its formation. At this stage, the change in the value of the property as a whole is analyzed, that is, the balance sheet asset, the change in the ratio between non-current and circulating assets, as well as the change in their total value. In a similar way, the change in the liabilities of the balance sheet, that is, equity and debt capital, as well as the ratio between them, is studied.
Stage 3. Analysis of the liquidity and solvency of the enterprise.
The liquidity of an enterprise is its ability to fulfill its short-term obligations in a timely manner. The main indicators characterizing liquidity and solvency are the liquidity ratios and the solvency ratio.
DS - cash;
KFV - short-term financial investments;
KP - short-term liabilities (liabilities).
The absolute liquidity ratio shows what proportion of its short-term liabilities the company is able to repay at the expense of the most liquid part of its assets. There is no normative value for this indicator. One of the recommended values is 0.05-0.2. High values of this ratio are beneficial for creditors, who, in the event of bankruptcy of the enterprise, will more easily receive their debts in the form of cash. From the standpoint of an operating enterprise, maintaining high values of this indicator is not at all necessary. During normal operation of the enterprise, the share of free funds can be very low. For example, in Japan, the value of this coefficient is considered to be 0.01-0.02.
Liquidity ratios
COC CO
SOS - own circulating assets (OA - KO);
CO - the most urgent liabilities (items from section V of the balance sheet).
On practice The solvency of an enterprise is expressed through the liquidity of its balance sheet... The main purpose of assessing the liquidity of the balance sheet is to establish the amount of coverage of the company's liabilities by its assets, the period of transformation of which into cash (liquidity) corresponds to the maturity of obligations (urgency of return).
To carry out the analysis, the assets and liabilities of the balance sheet are classified according to the following criteria:
· By the degree of decreasing liquidity (asset);
· By the degree of urgency of payment of obligations.
This grouping of asset and liability items of the balance sheet is shown in the diagram.
To determine the liquidity of the balance sheet of the group of assets and liabilities are compared with each other.
 |
The conditions for absolute liquidity are as follows:
A1 P1; A2 P2; A3 PZ; A4< П4
A prerequisite for absolute balance sheet liquidity is the fulfillment of the first three inequalities.
The fourth inequality is balancing. Its implementation indicates that the enterprise has its own circulating assets (capital and reserves are non-current assets).
Less liquid assets cannot replace more liquid funds, therefore, if any of the inequalities has a sign opposite to that fixed in the optimal version, then the liquidity of the balance sheet differs from the absolute one.
Comparison of A1 with P1 and A1 + A2 with P2 allows you to establish current liquidity, which indicates its solvency for the near future. Comparison of A3 with P3 expresses prospective liquidity, which is the basis for forecasting long-term solvency.
Grade absolute indicators balance sheet liquidity is carried out using an analytical table.
The assets of the enterprise, depending on the speed of their conversion into money, are divided into 4 groups:
A1 - the most liquid assets - the company's cash and short-term financial investments. A1 = s.250 + s.260.
A2 - quickly realizable assets - accounts receivable and other assets. A2 = s.230 + s.240 + s.270.
A3 - slow-moving assets - stocks, as well as items from section I of the balance sheet asset "Long-term financial investments". A3 = s.210 + s.220 + s.140.
A4 - hard-to-sell assets - the total of section I of the balance sheet asset, with the exception of the articles of this section included in the previous group. A4 = p. 190 - p. 140.
Balance sheet liabilities are grouped according to the urgency of their payment:
P1 - the most urgent liabilities - accounts payable, other liabilities, as well as loans not repaid on time. P1 = p.620.
P2 - short-term liabilities - short-term loans and borrowed funds. P2 = p.610 + p.660.
P3 - long-term liabilities - long-term loans and borrowed funds. P3 = p.590.
P4 - permanent liabilities - equity capital, which is constantly at the disposal of the enterprise. A4 = s.490 + s.630 + s.640 + s.650.
Liquidity ratios determine the company's ability to pay its short-term obligations during the reporting period. The most important among them for financial management are the following:
· Ratio of total (current) liquidity;
· Quick liquidity ratio;
· Ratio of absolute liquidity;
· Net working capital.
Total liquidity ratio is calculated as the quotient of dividing current assets by short-term liabilities and shows whether the company has enough funds that can be used to pay off its short-term liabilities over a certain period. According to generally accepted international standards, it is believed that this coefficient should be in the range from one to two (sometimes three). The lower limit is due to the fact that working capital must be at least sufficient to pay off short-term liabilities, otherwise the company will be under the threat of bankruptcy. An excess of working capital over short-term liabilities by more than two (three) times is also considered undesirable, since it may indicate an irrational capital structure. When analyzing the coefficient, special attention is paid to its dynamics.
A particular indicator of the current liquidity ratio is quick ratio, revealing the ratio of the most liquid part of working capital (cash, short-term financial investments and accounts receivable) to short-term liabilities. To calculate the quick liquidity ratio, another calculation formula can also be used, according to which the numerator is equal to the difference between working capital (excluding expenses in future periods) and inventories. In Russia, its optimal value is defined as 0.7 - 0.8.
In most cases, the most reliable is the assessment of liquidity only by the indicator of working capital. This indicator is called absolute liquidity ratio and is calculated as the quotient of dividing cash by current liabilities. In Western practice, the absolute liquidity ratio is rarely calculated. In Russia, its optimal level is considered to be 0.2 - 0.25. and it is considered the most reliable coefficient.
Of great importance in analyzing the liquidity of an enterprise is the study net working capital, which is calculated as the difference between current assets and short-term liabilities. Net working capital is necessary to maintain the financial stability of the enterprise, since the excess of working capital over short-term liabilities means that the enterprise can not only pay off its short-term liabilities, but also has financial resources to expand its activities in the future. The presence of net working capital serves as a positive indicator for investors and lenders to invest in a company.
Change in liquidity level established by the dynamics of the absolute value of the net working capital. It is the amount of funds remaining after the repayment of all short-term obligations. Therefore, the growth of this indicator reflects the increase in the level of liquidity of the enterprise.
Net working capital gives a greater financial independence to the company in the face of a slowdown in the turnover of working finished products, bankruptcy of the debtor).
The optimal amount of net working capital depends on the characteristics of the company's activities, in particular, on the size of the enterprise, sales volume, the rate of turnover of inventories and receivables, the conditions for granting loans to the enterprise, on the industry specifics and economic conditions.
The financial position of the enterprise is negatively affected by both a shortage and a surplus of net working capital. The lack of these funds can lead the company to bankruptcy, since it indicates its inability to timely pay off short-term liabilities. The deficiency can be caused by losses in economic activities, the growth of bad accounts receivable, the acquisition of expensive fixed assets without preliminary accumulation of funds for these purposes, the payment of dividends in the absence of appropriate profit, financial unpreparedness to pay off the long-term obligations of the enterprise.
A significant excess of net working capital over the optimal need for it indicates an inefficient use of resources.
| Liquidity indicator | Meaning | Payment | Recom. meaning |
| 1. Total (current) liquidity | Adequacy of the company's working capital to cover its short-term liabilities. It also characterizes the margin of financial strength due to the excess of current assets over short-term liabilities | working capital / short-term liabilities ((line 260 b. + line 250 b. + line 241 b. + p. 210 b.) / total of section V b.) | 1-2 |
| 2. Urgent (intermediate liquidity, coverage ratio) liquidity | Predicted payment capabilities of the enterprise in the context of timely settlements with debtors | (Cash + Short-term financial investments + Net accounts receivable) / Short-term liabilities ((p. 260 b. + P. 250 b. + P. 241 b.) / Total of section V b.) | 0,7 -0,8 |
| 3. Absolute (fast) liquidity | What part of short-term debt the company can repay in the near future (as of the balance sheet date) | Cash + short-term financial investments / Short-term liabilities ((p. 260 b. + 250 b.) / Total of section V b.) | ≥ 0,2 |
| 5. Ratio of own solvency (Ksp) | It characterizes the share of net working capital in short-term liabilities, i.e. the ability of an enterprise to recover from its net current assets its short-term debt obligations | Net working capital / working capital | individual |
Since these parameters are one-time (shown in the balance sheet at the end of the quarter), it is advisable to calculate them for a number of periods. As a result, it is possible to construct a time series of solvency and liquidity indicators and give them a more objective and accurate assessment.
Balance sheet liquidity analysis
|
Name of the asset group, calculation procedure |
Value, thousand rubles |
Name of the group of liabilities, calculation procedure |
Value, thousand rubles |
Amount of payment surplus (shortage), thousand rubles |
|||||||||
During two periods, the enterprise has only one condition that does not correspond to the required ratio, namely, the most liquid assets do not cover the most urgent liabilities. The rest of the conditions are met, therefore, the company can repay long-term liabilities on time, and the excess of equity capital over non-current assets indicates that the company has its own circulating assets.
Let's calculate the liquidity ratios (Table 6).
The absolute liquidity ratio decreased in 2013 by 0.01, and does not meet the standard values. Its value indicates that the company can pay off 10% of its short-term liabilities. The decrease in this indicator was due to an increase in accounts payable.
Table 6
Organization liquidity ratios
|
Indicator name |
Calculation procedure |
Normative value |
Actual value |
The change |
|||
|
Absolute liquidity ratio |
|
||||||
|
Intermediate liquidity ratio |
|
||||||
|
Current liquidity ratio |
|
||||||
|
Solvency ratio for the period |
|
||||||
The intermediate liquidity ratio also decreased over time (0.94 in 2013). This value means that the company can repay 94% of the debt with late payment. The value of the current liquidity ratio also does not meet the standard value, and is decreasing in dynamics, but the value of this ratio is more than one, which indicates that the company has a certain amount of free resources generated from its own sources.
The solvency ratio increased for the analyzed periods by 0.04 and amounted to 1.01 in 2013, which means that the company has an excess of the amount of cash inflow over their outflow. The value of the coefficient corresponds to the standard value and indicates the balance of cash flows.
In the construction and industrial market, large companies predict the volume and dynamics of production, they are stable, so there is an opportunity to reasonably assess the future cash flows of the company.
The authorized capital of the Company is 9,933,153,000 (Nine billion nine hundred thirty-three million one hundred fifty-three thousand) rubles, determined as the sum of the par value of the outstanding shares and consists of ordinary shares in the amount of 9,933,153 (Nine million nine hundred thirty three thousand one hundred fifty three) PC. (par value 1000 rubles per share). The shares of JSC RZDstroy are distributed between two shareholders, namely JSC Russian Railways - 100% -1 share and JSC Baminvest - one share.
There are no shares of the Company owned by members of the Board of Directors, the Audit Commission and the General Director. Individuals among the shareholders are absent. There are no shares of the Company in federal ownership or property of the constituent entities of the Russian Federation. Accordingly, the shares of JSC RZDstroy are not traded on the stock market.
Where to get the norms or in general to draw conclusions about the Coef. absolute liquidity
Coef. absolute liquidity 1.06
Coef. quick liquidity 1.05
Coef. current liquidity 1.67
something wrong. Coef. absolute liquidity cannot be MORE Coef. quick liquidity. But in general - if more than one, then everything is fine - it means that the company has enough money to answer all current obligations.
The easiest way is to look at the norms and other things on this site.
Pavel preobrazhensky
The absolute liquidity ratio is calculated as the ratio of total cash and short-term investments to short-term liabilities (liabilities). To calculate the absolute liquidity ratio, data from the balance sheet of the enterprise is required. As part of assets, when calculating the absolute liquidity ratio, only cash is taken into account:
Cal = (DS + KFV) / TO,
Where: Cal - cal. absolute liquidity; DS - cash; KFV - short-term financial investments; TO - current liabilities.
The normal value of the absolute liquidity ratio is considered to be a value of at least 0.2. Thus, with a value of the absolute liquidity ratio of 0.2, 20% of short-term liabilities can be repaid daily.
...
Calculation formula for the quick ratio:
Kbl = (KDZ + KFV + DS) / (KP-DBp-RPR),
Where: Kbl - odds. quick liquidity; КДЗ - short-term receivables; KFV - short-term financial investments; DS - cash; KP - short-term liabilities; DBp - deferred income; РПР - reserves for future expenses.
The meaning of the quick ratio is the ability of a firm to quickly pay off debt obligations in the event of difficulties associated with the sale of the firm's main products.
...
Depending on the industry, the value of the current liquidity ratio is considered acceptable in the range from 1.5 to 2.4. The greater the value of the current liquidity ratio, the higher the company's solvency. However, an excessively high value of the current liquidity ratio may indicate an irrational structure of the company's capital.
Ktl = (OA + DZd + ZU) / KO
Where: Ktl - cal. current liquidity; ОА - current assets; ДЗд - long-term accounts receivable; ЗУ - debts of founders on contributions to the authorized capital; KO - short-term liabilities.
...
Coef. absolute liquidity 1.06 - tells us that the company is able to pay off all short-term liabilities on the current day, moreover, not even limit this day's expenses, since Kal> 1. / and your Cal is more than one? :) :) :) /
Coef. quick liquidity 1.05 - indicates that the company is not experiencing financial difficulties in covering short-term passive costs (investments).
Coef. current liquidity 1.67 - shows that the enterprise as a whole is quite profitable (since it is more than 1.5), and the capital structure of the enterprise is presumably rational (since it is less than 2.4, in order to remove presumably - you need to look at the OA / KO ratio - if it is - at least 1 - then everything is ok.).
...
(I leave in the column the source - the link - what will appear for review - this is the code that removes the responsibility for the link from the site so that the moderator does not check it, the site will first display a page with a warning, and from it you can follow the link. use it - that's how you write it, and at the end, instead of ellipsis - your link.)
In the analysis of the activities of any enterprise, liquidity ratios play an important role. There are several of them, but this publication will focus on one of them - the absolute liquidity indicator, its value and calculation.
Absolute liquidity: concept
The term "liquidity" defines the company's ability to cover the debt owed to creditors by its existing property. The absolute liquidity of the balance sheet is one of the indicators that establish the levels of solvency and financial stability of the company. The greater the calculated value of liquidity, the higher the rate of debt coverage, respectively, low liquidity indicates the emergence of the risk of bankruptcy.
Analyzing this indicator, assets are grouped according to the speed of their implementation, if necessary, and liabilities - according to the maturity. For example, property is differentiated into realizable:
- Instantly (money and investments accumulating in section 2 of the balance sheet);
- Fast (accounts receivable up to a year);
- Over a period of time (stocks);
- Long term (non-current assets).
Depending on the speed of transferring property into money, three indicators are considered - absolute, current and critical liquidity. The absolute liquidity ratio shows what proportion of the available short-term debt the firm is able to repay in a short time at the expense of quickly realizable property.
Absolute Liquidity Ratio: Balance Formula
Calculate the ratio of absolute liquidity by the ratio of quick assets (cash and short-term investments) to current liabilities. The data for calculating the value of the indicator is available in the balance sheet. When comparing the fluctuations of the indicator, the economist considers the data of the balance sheets for several reporting periods.
For absolute liquidity, the balance calculation formula looks like this:
K al = (Art. 1240 + Art. 1250) / (Art. 1500 - Art. 1530 - Art. 1540),
where cash and investments of current assets are accumulated in the numerator, and the denominator is the sum of short-term liabilities, except for deferred income and estimated liabilities. The denominator can be changed to the sum of lines 1510, 1520 and 1550, which, in fact, does not change the meaning of the formula.
Absolute liquidity ratio: value
The norm for the absolute liquidity indicator is considered to be a value from 0.2 to 0.5. World practice has adopted a standard indicator of 0.2, which means that in order to maintain an acceptable level of the company's liquidity, the total amount of cash and cash equivalents should be 20% of current debts.
Taking into account the heterogeneity of the composition of current liabilities and the timing of their repayment in Russian companies, the indicator 0.2 is considered an insufficient value, therefore the optimal value of the indicator varies in the range of 0.2-0.5.
A coefficient less than 0.2 indicates the impossibility of immediate payment for contracts with the firm's money or funds received from the sale of securities, i.e., the company's insolvency. It is believed that the higher the absolute liquidity ratio, the more solvent the enterprise, however, an excess of the index of 0.5 indicates an irrational capital structure, i.e., a high proportion of idle assets (money in accounts) that are not involved in circulation, which leads to the loss of a part arrived.
An example of calculating the absolute liquidity ratio for the balance sheet
Comparing the balance sheet indicators for the period from 2015 to 2018, the economist needs to calculate the absolute liquidity for the enterprise:
Periods
Balance lines
Absolute liquidity, value(column 2 + column 3) / (column 4 + column 5 + column 6)
Analysis of the dynamics of indicators of the company's absolute liquidity according to the balance sheet showed:
- In 2015, an excess of the standard value of the indicator was established, which indicates a high solvency of the company, but the lack of proper financial management - the funds are in the accounts and do not participate in the turnover, which means a decrease in the profitability of the business;
- In 2016, the indicator decreased due to investments of working capital in securities. The liquidity of the current debts is still high, but within the acceptable limits;
- In 2017, with an increase in borrowed funds and a sharp decrease in the availability of monetary assets, the absolute liquidity ratio fell below the critical level, amounting to 0.19. Company management to avoid loss financial stability the company needs to develop a more effective production management strategy and find out the reasons for the decrease in the volume of quick-selling assets;
- In 2018, the company's position is stabilizing - accounts payable and the amount of attracted funds have been reduced against the background of an increase in the volume of cash and securities. A ratio of 0.29 is acceptable, meaning that 29% of current debt is repaid quickly.
Material from the site
Absolute liquidity ratio (Cash ratio)
Absolute liquidity ratio Is a financial indicator used in analyzing the liquidity of a company by calculating the ratio between all cash assets, cash equivalent assets and all current liabilities.
Synonyms: Cash Ratio, Liquidity Ratio, Cash Ratio, Cash Ratio.
The absolute liquidity ratio characterizes the company's ability to repay current liabilities (and to what extent) at the expense of liquid working capital and other free assets. The available amount of cash is taken into account, as well as their equivalents: marketable securities, deposits and other absolutely liquid assets.
Cash is understood as the totality of cash held in the cash desk of the organization, formed from the initial cash and the difference between receipts and expenses. Since cash reserves do not generate income, entrepreneurs seek to reduce them to a minimum sufficient for settlements with customers, counterparties and for other operating costs. Therefore, in banking, there are regulatory requirements for the level of cash maintenance. Among commercial enterprises, there is a tendency towards a decrease in the absolute liquidity ratio, that is, a decrease in the need for funds.
Since the Cash Ratio model measures only the most liquid of all assets in relation to current liabilities, this indicator is therefore considered the most conservative of all liquidity ratios used.
Cash ratio characteristics:
1) It is taken into account in the indicators of urgent and current liquidity.
2) Used in the credit profile of the company.
3) Excludes inventory and receivables from the calculation. That is, the ratio demonstrates the extent to which a company can meet its current obligations without relying on the sale of inventories and without relying on receivables.
4) It characterizes the ability to immediately pay off the current short-term liabilities of the enterprise - that is, whether there are resources that can satisfy the claims of creditors in a critical situation. Therefore, this indicator is taken into account by future suppliers with relatively short terms lending. For strategic investors, the company's absolute liquidity is less important.
Calculation of the absolute liquidity ratio
Cash liquidity ratio formula:
CR = Cash + Short Term Market Investments / Short Term Liabilities
The data for the calculation can be obtained from the balance sheet. It should be borne in mind that the formula ignores the time of receipt and payment of funds.
Cash Ratio standard value
Current liquidity ratio- one of the indicators that are used in the practice of conducting financial analysis enterprises together with the quick ratio and the absolute liquidity ratio. Current ratio (CR) characterizes the company's ability to pay off current short-term liabilities (current liabilities) at the expense of current assets.
Distinguish between current (general) and urgent liquidity. The total liquidity of the enterprise is determined as the ratio of the amount of current assets and the amount of current liabilities, determined at the beginning and end of the year.
Synonyms for the current liquidity ratio: coverage ratio, Current ratio, CR, "liquidity ratio", "cash asset ratio", "cash ratio".
Appointment of KTL
1) Shows the ability of the enterprise to pay off its debts during the duration of one production cycle (the period required for the manufacture and sale of one batch of products).
2) To get a general idea of the company's solvency, that is, its ability to pay debt obligations at the expense of available cash, inventory, accounts receivable.
3) To get an idea of the company's operating cycle efficiency or its ability to turn its products into cash. If a company is struggling to pay receivables on time or has a long inventory turnover period, it may face liquidity problems.
4) The components of the ratio (current assets and current liabilities) can be used to calculate the amount of working capital (working capital ratio), which is the ratio of the amount of working capital to the amount of revenue.
5) The current liquidity ratio is of interest not only for the management of the enterprise, but also for external subjects of analysis, in particular for investors.
CR coefficient calculation formula
Coverage ratio is calculated by the formula:
Current liquidity = Current assets / Current liabilities
The current assets of the company mean:
- Cash on hand and in bank accounts, as well as cash equivalents.
- Accounts receivable, taking into account the provision for covering bad debts.
- The cost of inventories that must have a relatively fast turnover within a year.
- Other current assets (deferred expenses, investment in securities, etc.).
Current liabilities:
- Loans with the nearest maturity (within a year)
- Unpaid claims (suppliers, budget, etc.)
- Other current liabilities.
This is a preparation of an encyclopedic article on this topic. You can contribute to the development of the project by improving and supplementing the text of the publication in accordance with the rules of the project. You can find the user manual
In the article we will consider.
Current liquidity ratio. Balance calculation formula
Current liquidity ratio (English Current ratio) is calculated as the ratio of highly liquid assets, fast-moving assets and slow-converting assets to the most urgent liabilities and medium-term liabilities. This indicator is one of the three main criteria that characterize the liquidity of an enterprise. Liquidity is usually equated with the solvency and ability of an enterprise (firm, company) to sell assets at a market price. The concept of liquidity comes from the term to liquidate, that is, to sell. Liquidity is one of the key concepts financial analysis and shows the speed of transfer of assets into money.
Below is a classification of the types of assets and liabilities of the company used to assess liquidity.
A1 = Highly liquid assets (line 1250)
A2 = Quick-Selling Assets (line 1230)
A3 = Slow Convertible Assets (line 1220)
—————————————————————
P1 = Most urgent obligations (p. 1520)
P2 = Medium-term commitments (line 1510)
As a result, the analytical formula for assessing current liquidity is as follows:
Calculation of the current liquidity ratio according to the new balance sheet form
The new balance was adopted in 2011, the main differences are in the names of the lines, and not in the economic sense of the formula.
Current liquidity ratio= p. 1200 / p. 1510 + p. 1520 + p. 1550
Calculation of the current liquidity ratio according to the old balance sheet
There are two options for calculating this indicator according to the old formula.
Current liquidity ratio= (p. 290 Form No. 1) / (p. 610+ p. 620 + p. 630 + p. 640+ p. 660);
Current liquidity ratio= (p.290-p.230 Form No. 1) / p.690.
Current liquidity ratio
If the current liquidity ratio is more than 2, this indicates that the company has more current assets than short-term liabilities with two-fold coverage. The enterprise (company) has a high ability in the short term to pay off its obligations (debts). The normative value of current liquidity equal to 2 was obtained in practice and is most often found in domestic regulations.
In world practice, the optimal coefficient is in the range from 1.5 to 2.5. If the current liquidity ratio is less than 1, then the company cannot sustainably pay off short-term liabilities. The table below shows comparisons between domestic and international standards and the level of the company's solvency.
| The valuesindicator | Standards | |
| Russian | International | |
| <1 | Critical solvency | |
| 1,5-2 | Low solvency | |
| 2-3 | Satisfactory solvency | |
| >3 | High solvency / Possible irrational capital structure | |
Current liquidity ratio in infographics
The picture below in the infographic reflects key features current liquidity ratio, directions of use, calculation formula and indicator assessment.
Click to enlarge
Video lesson: "An example of calculating liquidity ratios for OAO Gazprom"
Comparison of the current liquidity ratio with other indicators of liquidity
In addition to the current liquidity ratio, in the practice of financial analysis, the quick liquidity ratio and the absolute ratio are often used. They show the ability of an enterprise to pay off its debt obligations with fast-moving and highly liquid types of assets.
So the absolute liquidity ratio shows the company's ability to pay off its debts at the expense of the most liquid assets (money and short-term financial investments). That is, this indicator shows maximum speed, with which the company can pay off creditors (and other borrowers).
The quick liquidity ratio shows the ability of an enterprise to pay off its debts using not only highly liquid assets, but also quickly realizable assets - these are short-term receivables.
How to calculate the current liquidity ratio by industry?
The standard values are also influenced by the industry average values of the current liquidity ratio. Here is an algorithm for calculating the current liquidity indicator for any industry.
In various industries, there may be different meanings coefficient. To calculate the industry average values, OKVED codes (Classifier of activities) are used. According to them, enterprises engaged in one type of activity are grouped, the values of the coefficient are calculated and averaged.
For example, if we take an oil and gas industry, the enterprises will have the following types of activities.
In addition to choosing enterprises for a single OKVED code, you should also select companies by size, for this we use the indicator "Sales revenue". This is done in order to make the sample for analysis as homogeneous as possible.
The formula for calculating the current liquidity ratio for the industry is as follows:
Industry current liquidity ratio= Ratios of the current liquidity of the enterprise (one OKVED code and the volume of proceeds) / Number of enterprises
For all similar enterprises, according to the selected OKVED code and size, the current liquidity ratio is calculated and an arithmetic average averaging is made. For such an analysis, it is excellent Information system data analysis - SPARK. To improve accuracy, you can assign different weights to different site groups.
An example of the analysis of the current liquidity ratio for JSC Transneft and the industry
The current liquidity indicator for 2009 for OJSC Transneft is 3.48, which is quite high in terms of general standards. Let us compare a business with similar businesses with a similar activity and size.
The type of activity of JSC "Transneft" - Oil and gas industry, Oil products - sales, transportation, Oil and gas - production. For OJSC Transneft, the sales proceeds exceed 1,000 million rubles. The final calculation of the industry average value of the indicator is presented in the table below.
The value of current liquidity for similar enterprises was calculated, which amounted to 2.76. As we can see, JSC Transneft has a higher solvency in relation to the industry average. This speaks of the good financial condition of this company.
An example of comparing the current liquidity ratio of an enterprise with an industry
In addition to comparing it with the industry average value of the current liquidity indicator, one can compare it with the indicator for a selected region, for example, Moscow, as one of the leading regions of Russia.
Forecasting the current liquidity ratio
A point calculation of the current liquidity ratio cannot fully characterize the state of the enterprise. Therefore, it is necessary to analyze the dynamics of changes in the indicator for several reporting periods. This allows us to predict its further change. The figure below shows the dynamics of changes in the current liquidity ratio and a forecast based on linear regression.
Dynamics of changes in the current liquidity ratio for JSC "Transneft"
As we can see, there is an upward trend in the change in the current liquidity indicator. This indicates favorable programs for the financial recovery of the enterprise, when in 2007 the indicator was less than 0.5, which does not correspond to the standards, while in 2010 it is higher than the standard value (equal to 2.1).
How to increase the current liquidity ratio
As we found out, the current liquidity ratio characterizes the financial condition of the company and is used by many credit institutions to assess the company's solvency. An increase in the company's solvency leads to a decrease in the cost of borrowed capital ( interest rates on loans), which means that it allows you to increase the net profit and profitability of the company.
Let's consider several ways to increase the coefficient:
- Reducing the volume of accounts payable due to its restructuring by offsetting or writing off as unclaimed.
- Increase in current assets.
- An increase in current assets and at the same time a reduction in accounts payable.
Summary
The indicator of current liquidity is an important indicator of the financial condition of an enterprise / company, which must always be monitored. The increase in the indicator makes the enterprise more attractive for investors and lenders, which can give it more additional leverage and financial resources to increase its market value and profitability.
In this article, we will consider the current liquidity ratio, which shows the company's ability to repay current (short-term) liabilities at the expense of current assets only.
Due to the simple calculation formula and information content, the current liquidity ratio has an important place in the assessment financial activities various industries, finds application in a number effective techniques bankruptcy forecasting.
Current liquidity ratio. general information
Current (or total) liquidity ratio (k) is a financial value that shows the ratio of current assets to current liabilities, or short-term liabilities, which is compiled on the basis of the balance sheet information. It is also an indicator of the ability to repay short-term loans using working capital. The higher k is, the more solvent the company is. Its decrease indicates that the assets are no longer being sold urgently. General formula:
- k = (current assets): (current liabilities).
Current assets:
- cash (including electronic money) at the cash desk, on bank settlement accounts;
- accounts receivable + reserve for compensation of bad debts;
- investments in securities;
- material assets and products for sale.
Current responsibility:
- loans for up to one year;
- unpaid obligations to suppliers, treasury.
- other loans.
Deduction formula for assets and liabilities:
- k = (Al + Ab + Am): (Ps + Pk), where
- Al - Liquid assets;
- Ab - quickly sold;
- Am - slowly realizing;
- Ps - liabilities of urgent obligations;
- PC - short-term.
Balance Formula:
- k = (p. 1200 + p. 1170): (p. 1500 - p. 1530) - p. 1540).
The purpose of the total liquidity ratio
This value performs the following tasks:
- an indicator of the availability of the ability to pay off its obligations during the current production cycle;
- "Litmus test" of the company's solvency, its ability to cover all loans with the available amounts;
- efficiency indicator of both a separate operating period and the selected direction of product turnover;
- important information for investors;
- the components necessary for the formula of a given k are also used in calculating the working capital.
The rate of the current liquidity ratio and deviations from it
Current liquidity ratio value:
| Short | Norm | High |
| < 1,5 | 1,5 -2,5 | > 2,5 |
| Difficulties in fulfilling obligations - the consequence should be the closure of accounts payable and a decrease in current assets, since the company will not be able to pay its obligations at that moment. However, such budgetary instability does not always lead to company bankruptcy. | Illustrates how many rubles of current assets fall on the ruble of current liabilities. Theoretically, such an enterprise will be able to respond to its obligations in a timely manner at any time. | Current assets and goods are not used at the proper level - the availability of short-term loans should be expanded |
Important! When calculating, one should not forget that liquid assets are uneven - it is necessary to take into account in detail the speed of their turnover (use the second formula).
Ways to increase the liquidity of the enterprise
The following methods are used to optimize the k indices:
| Way | Actions | pros | Minuses |
| Increasing the profitability of core activities, keeping most of the income at your disposal | Cutting dividends Reduced funding for non-production goals | Rapid reduction of k to the norm area | Negative impact on the company's image, trust of founders, shareholders |
| Reducing the number of projects funded by short-term capital | Reducing the amount of investments in investment in construction, reconstruction, purchase of expensive equipment | The company stops investing amounts in excess of its financial capabilities | Reflection at the level of compliance with international standards for equipment and conditions of production and other activities |
| Limiting financing from short-term loans | Use of short-term debt only to replenish working capital, to cover the remaining items of expenditure, a multi-year loan is used | Investment in long-term programs is carried out at the expense of a long-term loan and at the expense of current income | The emergence of new loan obligations |
| Changes in the principles of capital management | Programs to improve the efficiency of working capital management | General modernization of business practices | Suitable only for companies whose increase in working amounts is associated with financing through short-term loans |
| Restructuring of debt to creditors | Offsetting and subsequent write-off in the form of an unclaimed amount | Getting rid of overwhelming debt | Complex, trust-breaking process |
Important! Shortk real liquidity is not an indicator of a company's cash deficit. Since current assets include receivables, investments, products, etc.
Calculation of the indicator on the example of "AVTOVAZ"
| Indicator | year 2014 | 2015 year | 2016 year |
| Working capital | 49 783 | 40 073 | 55 807 |
| Short-term loans | 86 888 | 112 867 | 117 723 |
Using the general formula:
- k (2014) = 49 783/86 888 = 0.001151;
- k (2015) = 40 073/112 867 = 0.00000886;
- k (2016) = 55 807/117 723 = 0.4740535.
Average indicator of current liquidity by industry in the Russian Federation
| 2013 | 2014 | 2015 | 2016 | 2017 | |
| Agriculture | 1,7644 | 1,7437 | 1,7678 | 1,7651 | 1,862 |
| Building | 1,327 | 1,2474 | 1,2069 | 1,251 | 1,243 |
| Oil and gas industry | 1,8771 | 1,7718 | 1,8343 | 1,7849 | 2,3887 |
| Trade enterprises | 1,6426 | 1,6931 | 1,658 | 1,7146 | 1,6006 |
| Industry (metallurgy) | 1,5689 | 1,5572 | 1,5297 | 1,592 | 1,5261 |
| Small business (hotel, restaurant service) | 1,4887 | 1,1795 | 1,2726 | 1,5998 | 1,2305 |
| General indicators by country | 1,7143 | 1,6764 | 1,5012 | 1,5389 | 1,4903 |
Comparison with other liquidity ratios
Comparative table of existing liquidity deduction ratios:
| kabsolute liquidity | ktotal liquidity (current) | kquick liquidity | |
| The essence | Analyzes liquidity by calculating k between the company's total budget, its equivalent and current loans | The ability to pay off short-term debt at the expense of working capital | The ability to repay a loan using their fastest-to-cash assets, for example, in the event of sudden difficulties in selling the company's goods. Financial stability indicator |
| Peculiarities | Credit characteristics of the company. Does not take into account debts of debtors, stocks of goods and unsold products - only monetary assets available at the moment. Evaluates the current ability to respond to your loans | General information about solvency, including its assessment for one production period. Data on the ability to cash out their products. The indicators for its calculation can be used in the formula that subtracts working capital | It is somewhat similar to subtracting k of total liquidity, but shifts the focus to a narrower area, excluding production inventories - the slowest part of assets in terms of liquidity. In assessing solvency, the method is more conservative and cautious. |
| Calculation formula | K = ((monetary assets) + (short-term investments)): (short loans) | K = (current assets): (current loans) | K = ((monetary assets) + (short-term investments) + (debtors' debts)): (current short-term liabilities) |
| Norm values | <0,2 – неимение возможности ответить по обязательствам при помощи только оборотных средств; 0.2 - 0.5 - normal solvency; > 0.5 - unclaimed monetary assets in banks, irrational investment | <1,5 – трудности в покрытии долгов; 1.5-2.5 - normal solvency; > 2.5 - irrational distribution of assets, infringement of financing of any industries | 0.7-1 - the norm, the loans taken and provided by the company are approximately equivalent. Below 0.7 - there is a likelihood of a shortage of liquid values. More than 1: the company's desire to provide loans to debtors in more rather than acquiring such obligations for yourself |
| Application | Calculation is required for future suppliers who require payment using urgent loans | The indicators of this k are more of interest to investors | Wide range: for managers - an assessment of the company's financial performance; for creditors - checking the financial stability of the enterprise, risks associated with it; for investors - a forecast of return on investment |
Important! The norms of the coefficients may differ depending on the industry of the enterprise.
Using the current liquidity ratio in forecasting bankruptcy
The current liquidity ratio is one of the quantities that allow you to calculate the state of affairs of a company in the future - bankruptcy or prosperous activity. In calculations, the formula of Edward Malton is often used:
- B = - 0.3877 - 1.0736 x k l + 0.0579 x k n. (k l is the current liquidity ratio, k n is the concentration of hired funds):
- B> 0 - the probability of bankruptcy is small;
- B = 0 - 50/50;
- V< 0 – чем выше величина, тем вероятнее разорение.
The advantage of the formula is its simplicity. However, it is not adapted for Russian business, since it was created on the example of reporting foreign countries, so there is a possibility of forecast error. A more accurate formula is the so-called four-phase, but with different components:
- B = (8.38 x A 1) + A 2 + (0.054 x A 3) + (0.63 x A 4), where
- And 1 - current assets / asset;
- And 2 - net income / your budget;
- And 3 - profit from the sale of products / asset;
- And 4 - net revenue / integral expenses.
Important! It is believed that this formula is able to predict the future of the company with a result of up to 80%.
What does the negative indicator of current liquidity show?
Literally negative number the value of the indicator cannot be - it can be small, up to one ten-thousandth. The progressing negative dynamics of the value indicates the following:
- wrong financial policy company and distribution of funds;
- oversaturation of obligations to creditors;
- a large amount of unsold products;
- excessive investment;
- the presence of a large number of outstanding debts to the company.
- likely close to bankruptcy.
Methods for assessing the financial condition using the current liquidity indicator
The main assessment methods with the participation of the coefficient:
- Selezneva-Ionova model. The methodology is aimed at comparing actual indicators with the standard, detecting the profitability of assets in terms of their net income, as well as overall assessment company management.
- The Sayfullin-Kadykov model. Similar to the previous one, it may be true for analyzing the financial status of companies of various industries and sizes. The success of sales and turnover of your own budget is also calculated.
- Postyushkov's model. Suitable for predicting the ruin of an enterprise with a predictive range of the state of up to six months.
Current Ratio: Topical Issues
Answer: All information is taken from the company's annual financial statements, accounting documents.
Question # 2: Should we be guided by the all-Russian norms of the current liquidity ratio?
Answer: For informational purposes only. For each industry, depending on the constituent entity of the Russian Federation, where it operates, the k indicators vary greatly.
Question # 3: For whom in the first place do we need to calculate k total liquidity?
Answer: It is useful for the head of the company to have this information; it can also be required by your creditors and investors.
Question # 4: If the ratio indicator calculated by me is high - more than two, then my business is moving in the right direction?
