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 a simple calculation formula and information content, the current liquidity ratio has an important place in assessing the financial activities of various industries, and is used in a number of effective methods for predicting bankruptcy.
The current (or total) liquidity ratio (k) is a financial value showing the ratio of current assets to current liabilities, or short-term liabilities, which is compiled on the basis of information from the balance sheet. It is also an indicator of the ability to repay short-term loans with working capital. The higher k is, the more solvent the company is. Its decrease suggests that the assets are no longer sold urgently. General formula:
Current responsibility:
The formula for deducting assets and liabilities:
Balance formula:
This value performs the following tasks:
The value of the current liquidity ratio:
| Short | Norm | High |
| < 1,5 | 1,5 -2,5 | > 2,5 |
| Difficulties in fulfilling obligations - the result 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 this moment. However, such budgetary instability does not always lead to the bankruptcy of the company. | It illustrates how many rubles of current assets fall on the ruble of current liabilities. Theoretically, such an enterprise will be able to meet its obligations in a timely manner at any time. | Current assets and commodities are misused – availability of short-term loans should be expanded |
Important! When calculating, we must 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).
To optimize the indicators k, the following methods are used:
| Way | Actions | pros | Minuses |
| Increasing the profitability of the main activity, keeping most of the income at your disposal | Dividend cuts Reducing funding for non-productive purposes | Quick reduction of k to the norm | Negative impact on the company's image, trust of founders, shareholders |
| Reducing the number of projects financed by short-term capital | Reducing the amount of investments in investment in construction, reconstruction, purchase of expensive equipment | The company stops investing amounts that exceed its financial capabilities | Reflection at the level of compliance with international standards for equipment and conditions of production and other activities |
| Limitation of financing through short loans | Using short-term debt only to replenish working capital, a multi-year loan is used to cover other items of expenditure | Long-term programs are invested using a long-term loan and current income | Emergence of new credit obligations |
| Changes in money management principles | Programs to improve the efficiency of working capital management | General modernization of business methods | Suitable only for companies whose increase in working capital is due to financing through short loans |
| Restructuring of debts to creditors | Set-off and subsequent write-off as unclaimed amount | Get rid of unbearable debt | Complicated, credible process |
Important! Shortk real liquidity is not an indicator of a company's cash deficit. Since current assets include receivables, investments, products, etc.
| Index | year 2014 | 2015 | 2016 |
| working capital | 49 783 | 40 073 | 55 807 |
| Short term loans | 86 888 | 112 867 | 117 723 |
Using the general formula:
| 2013 | 2014 | 2015 | 2016 | 2017 | |
| Agriculture | 1,7644 | 1,7437 | 1,7678 | 1,7651 | 1,862 |
| Construction | 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 for the country | 1,7143 | 1,6764 | 1,5012 | 1,5389 | 1,4903 |
Comparative table of existing liquidity deduction ratios:
| k absolute liquidity | kgeneral liquidity (current) | kquick liquidity | |
| Essence | Analyzes liquidity by calculating k between the company's total budget, its equivalent and current loans | Possibility to repay short-term debt at the expense of working capital | The ability to repay a loan with your fastest-cashing assets, for example, in the event of sudden difficulties in selling the company's goods. An indicator of the soundness of financial status |
| Peculiarities | Credit profile of the company. It does not take into account the debts of debtors, inventories of goods and unsold products - only monetary assets that are available at the moment. Assesses the current ability to respond to their 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 | Somewhat similar to subtracting k total liquidity, but shifts the focus to a narrower area, excluding productive reserves– the slowest liquidity part of the assets. In assessing solvency, the method is more conservative and cautious |
| Calculation formula | K= ((monetary assets) + (short-term investments)) : (short-term loans) | K = (current assets) : (current loans) | K = ((monetary assets) + (short-term investments) + (debt debts)) : (current current 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 investments | <1,5 – трудности в покрытии долгов; 1.5-2.5 - solvency is normal; >2.5 - irrational distribution of assets, infringement in the financing of any industries | 0.7-1 is the norm, loans taken and granted by the company are approximately equivalent. Below 0.7 - there is a possibility of a shortage of liquid values. More than 1: the company's desire to provide loans to debtors in greater quantities than the acquisition of such obligations for itself |
| Application | Calculation is required for future suppliers who require payment using term loans | The indicators of this k are of greater interest to investors | Wide Range: for managers - assessment of the financial performance of the company; for creditors - verification financial stability enterprises, the risks associated with it; for investors - return on investment forecast |
Important! The ratios may vary depending on the industry of the enterprise.
The current liquidity ratio is one of the quantities that allow you to calculate the state of affairs of the company in the future - bankruptcy or prosperous activity. In calculations, the formula of Edward Malton is often used:
The advantage of the formula is its simplicity. However, it is not adapted to Russian business, because it was created on the example of reporting foreign countries, so there is a possibility of a forecast error. A more accurate formula is the so-called four-phase, but with different components:
Important! It is believed that this formula is able to predict the future of the company with a result of up to 80%.
In the literal sense, the value of the indicator cannot be a negative number - it can be small up to one ten thousandth. The progressive negative dynamics of the value indicates the following:
The main assessment methods with the participation of the coefficient:
Answer: All information is taken from the annual financial report companies, accounting documents.
Question number 2: Is it worth focusing on the all-Russian norms of the current liquidity ratio?
Answer: Only for possession of information. For each industry, depending on the subject of the Russian Federation where it operates, the indicators k vary greatly.
Question 3: For whom should k of total liquidity be calculated in the first place?
Answer: It is useful for the head of the enterprise to have this information, and it may also be required by your creditors and investors.
Question #4: If my calculated ratio is high - more than two, then my business is moving in the right direction?
Answer: Unfortunately, it is not. High figures indicate that working capital is not actually working.
Question #5: Can the current liquidity ratio be negative?
Answer: No, even his formula does not imply this. Maybe a negative trend or a negative result - less than 1.5.
Illustration: Clerk
We won’t teach you how to become a financial director in one article, but we tried to include the main thing for the seed.
The financial analysis– study of the main indicators, coefficients that give an objective assessment of the current financial condition organizations for the purpose of making managerial decisions.
Calculating financial indicators, you can learn about current position affairs at the enterprise, problems and evaluate its opportunities and prospects in the future.
Competent analysis allows you to correctly build a development strategy, improve the mechanism for managing assets and attracted funds of the company.
The following users are interested in such information:
Basic forms financial statements— Balance sheet and Statement of financial results. These forms make it possible to calculate all the main financial indicators and ratios.For a deeper analysis, you can use the cash flow statements and the statement of changes in the capital of the organization, which are compiled at the end of the year.
All these coefficients characterize four main aspects - indicators of the financial performance of any organization, namely:
The coefficients are calculated depending on the task of financial analysis and the range of users for whom the information of the company's financial activities is intended.
The group of liquidity indicators includes coefficients:
To assess the stability of the organization allow liquidity ratios.
Liquidity is the ability of assets to be quickly sold at a price close to the market.The easier and faster you can get the full value of an asset, the more liquid it is.
The rate of sale of assets can be:
In the Russian balance sheet, the company's assets are arranged in descending order of liquidity.
They can be divided into the following groups:
The higher the liquidity ratios, the higher the solvency of the company.
Note that each of the liquidity ratios reveals information of a different nature.So the current liquidity ratio is of interest primarily to investors, the absolute liquidity ratio is useful for suppliers of goods (works, services), and the quick liquidity ratio is necessary for creditors.
This is the most common and commonly used measure of liquidity.
The current liquidity ratio reflects the company's ability to repay current (short-term) liabilities at the expense of current assets only.
Thus, the current liquidity ratio shows to what extent the company's current assets, when sold at a market price, will cover the company's short-term liabilities.The current (total) liquidity ratio is a financial ratio equal to the ratio of current (current) assets to short-term liabilities (current liabilities).
They take data to determine the current liquidity ratio from the balance sheet of the enterprise, compiled on any of the reporting dates.
This is usually an annual balance sheet, but you can also use interim reporting.
To see the nature of the change in this indicator over a number of periods, make several definitions of it for different reporting dates.
Current liquidity ratio formula:
Current Liquidity = Current Assets / Current Liabilities
Since the data for calculating the indicator in question is taken from the balance sheet, the current liquidity formula for the lines of the current form of this report will look like this:
Of the entire amount of section V (i.e., of the total amount of short-term liabilities):A coefficient value of at least 1 is considered normal.Current liquidity = line 1200 / line 1500
The higher the indicator, the better the solvency of the enterprise.
- Page 1200 - line number of the total of section II "Current assets" of the balance sheet;
- Page 1500 - line number of the total of section V "Current liabilities" of the balance sheet.
That is, it is necessary that general meaning current assets was greater than the amount of short-term liabilities.
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 greater than 3 may indicate an irrational capital structure.
The quick liquidity ratio depends on the rate of sale of highly and quickly liquid assets, which include:
The source of data is the company's balance sheet, more often the annual balance sheet, but interim reporting is also possible.
Quick liquidity ratio formula:
Quick liquidity = (Short-term receivables Short-term financial investments Cash) / Current liabilities
Based on the line numbers of the balance sheet, the formula for the quick liquidity ratio on the balance sheet can be displayed as follows:
Quick liquidity = (line 1230 line 1240 line 1250) / (line 1510 line 1520 line 1550)
If the quick liquidity ratio is equal to or greater than 1, then the company is able to ensure the rapid full repayment of its current debt at its own expense. Moreover, part of these funds (if the coefficient is greater than 1) will still remain with the organization.
When the quick liquidity ratio is less than 1, the company will not be able to quickly repay all of its current debt with its own funds.
At the same time, the quick liquidity ratio, which is in the range of 0.7-1, is considered acceptable, since it is common practice to do business with debts.
A quick liquidity ratio of less than 0.7 indicates an unfavorable situation, especially if the numerator contains the bulk of the amount accounted for by accounts receivable, among which it may be doubtful.
Determine the initial data for calculating the absolute liquidity ratio for the balance drawn up for a specific reporting date, or according to reports for a number of dates, if you need to track the dynamics of this indicator.
The absolute liquidity ratio is a financial ratio equal to the ratio of cash and short-term financial investments to short-term liabilities (current liabilities).
Absolute liquidity ratio formula:
Absolute liquidity = (Cash short-term financial investments) / Current liabilities
Based on the line numbers of the balance sheet, the formula for the absolute liquidity ratio for the balance sheet can be displayed as follows:
Absolute liquidity = (line 1250 line 1240) / (line 1510 line 1520 line 1550)
This means that the company is able to repay from 0.2 to 0.5 short-term debts as soon as possible at the first request of creditors.
Accordingly, a higher value of the indicator indicates a higher solvency.
Exceeding the value of 0.5 indicates unjustified delays in the use of highly liquid assets.
They are calculated as the ratio of net income to the amount of assets or flows from which it was received.
For this, accounting data are used (Form No. 1 and No. 2).
The higher the values, the more efficiently the analyzed resources of the enterprise are used.
Owners and shareholders are interested in profitability indicators.
Profitability ratios play an important role in the development of investment, personnel, and marketing strategies of the company.
The profitability of working capital will be the greater, the less resources the company spends to increase profits.
Working capital profitability formula:
Return on working capital = Net profit/working capital
If you use accounting lines, then:The higher the indicator obtained, the more efficiently the own working capital is used.Return on working capital = p. 2400/p. 1200
Page 2400 - line of the report on financial results (net profit of the company);
Page 1200 - line of the balance sheet (value of working capital).
The normative value of the profitability of working capital is more than 1.
The profitability ratio of working capital with a total of more than one means effective use working capital and testifies to the receipt of profit by the enterprise.
A negative result demonstrates the wrong organization of production.
The profitability ratio of sales determines the share of profit in each earned ruble and is calculated as the ratio of net profit (profit after tax) for a certain period to the volume of sales expressed in cash for the same period.
The formula for the profitability ratio of sales:
Return on sales \u003d Net profit / Revenue x 100%
To calculate the profitability of sales, information from the income statement (form No. 2) is used:There are no special standards for the profitability of sales.Gross profit margin = line 2100 / line 2110 × 100
Return on sales by operating profit = (line 2300 line 2330) / line 2110 × 100
Return on sales based on net profit = line 2400 / line 2110 × 100
The average statistical values of profitability by industry are calculated.
For each type of activity, its own coefficient is considered normal.
In general, a coefficient ranging from 1 to 5% indicates that the enterprise is low-profitable, from 5 to 20% - medium-profitable, from 20 to 30% - highly profitable.
A coefficient over 30% indicates super-profitability.
The return on assets ratio is calculated as the ratio of profit to average cost assets of the enterprise and reflects the amount of net profit from each ruble invested in the assets of the organization.
To do this, the indicator from form No. 2 "Report on financial results" is divided by the average value of the indicator from form No. 1 "Balance sheet".
Return on assets, as well as return on equity, can be considered as one of the indicators of return on investment.
Return on assets formula:The denominator of the formula should be the average value of the value of current assets.Return on assets = profit for the period / average value of assets for the period x 100%
Profit indicators for the numerator of the return on assets formula should be taken from the income statement:
sales profit - from line 2200;
net profit - from line 2400.
If the profitability of all assets is considered, then the balance sheet is taken (line 1600).
If the profitability of current assets is considered, then the result of section II of the asset balance is taken (line 1200).
If they are interested in a separate type - information from the corresponding line of the second section.
When calculating profitability non-current assets the denominator should reflect the total for section I - line 1100. Then we get the profitability of all available non-current assets.
If necessary, you can analyze the profitability of assets of a particular type, for example, fixed assets or a group of non-current assets (tangible, intangible, financial).
In this case, the formula is substituted with data on the lines that reflect the relevant property.
The higher the indicator, the more effective the entire management process is, since the indicator of return on assets is formed under the influence of all the company's activities.
For financial organization 10% or more is considered normal, for a manufacturing company - 15-20%, for a trading company - 15-40%.
In other words, how many kopecks of income each ruble of its own capital brings to the enterprise.The return on equity is calculated as the quotient of dividing the net profit received for the period by the equity of the organization.
Equity return on equity formula:
Return on equity = Net profit / Equity x 100%
The net profit of the organization is taken according to the "Report on financial results", equity - according to the liabilities of the balance sheet.
Return on equity on the balance sheet:
Return on equity = line 2400 / line 1300 × 100.
Current liquidity ratio (Ktl) - the ratio of the value of short-term assets to the value of short-term liabilities of the enterprise.
Allows you to determine whether the company has enough to cover current liabilities in a timely manner, so its other name is the coverage ratio.
The solvency of the company is assessed using Ktl.
For calculation the current liquidity ratio formula has the form:
Ktl = KA / KO,
where KA- short-term assets (Total for section II, line 290 of the balance sheet); KO- short-term liabilities (Total under section V, p. 690).
Short-term assets are in the current economic turnover and are used within one year (12 months). These include:
Short-term liabilities (liabilities) are the company's debts within a year:
By types of eq. activities of organizations for Belarus, the values are indicated in the post. Council of Ministers of the Republic of Belarus No. 1672 dated 12/12/2011 "On the definition of criteria for assessing the solvency of business entities."
The higher Ktl turned out to be, the higher the solvency of the enterprise. The minimum value is not lower than 1, so that working capital is at least enough to pay off short-term obligations.
The coefficient value of 2 or more is considered optimal. But you need to take into account the specifics of different areas (for example, a manufacturing plant in the industry will have a higher KTL than a grocery store, because the plant has large stocks of products and materials in warehouses, buyers pay for goods with a delay - a large receivable arises The retail store keeps a relatively fast-moving stock of products that pay immediately, so the ratio will be lower for it.
It would be correct to take into account industry specifics, which is what has been done in Belarus. For example, the norm of the current liquidity ratio for Agriculture- 1.5, and for retail trade the standard is 1.
Ktl more than 3 often says that the structure of assets is irrational, the reasons may be:
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Liquidity - ease of sale, sale, transformation of material or other values into cash to cover current financial obligations.
Liquidity ratios - financial indicators calculated on the basis of the company's statements (balance sheet of the company - form No. 1) to determine the company's ability to repay current debt at the expense of existing current (current) assets. The meaning of these indicators is to compare the amount of current debts of the enterprise and its working capital, which should ensure the repayment of these debts.
Consider the main liquidity ratios and formulas for their calculation:
Calculation of liquidity ratios allows you to analyze the liquidity of the enterprise, i.e. analysis of the possibility for the enterprise to cover all its financial obligations.
Note that the assets of the enterprise are reflected in the balance sheet and have different liquidity. Let's rank them in descending order, depending on the degree of their liquidity:
Current liquidity ratio or Coverage ratio or General liquidity ratio - a financial ratio equal to the ratio of current (current) assets to short-term liabilities (current liabilities). The source of data is the company's balance sheet (Form No. 1). The coefficient is calculated by the formula:
Current liquidity ratio = Current assets, excluding long-term receivables / Current liabilitiesKtl = (p. 290 - p. 230) / p. 690 or
Ktl = p. 290 / (p. 610 + p. 620 + p. 660)Ktl = line 1200 / (line 1520 + line 1510 + line 1550)
The ratio reflects the company's ability to repay current (short-term) liabilities at the expense of current assets only. The higher the indicator, the better the solvency of the enterprise. Current liquidity ratio characterize the solvency of the enterprise not only at the moment, but also in case of emergency.
The normal value of the coefficient is from 1.5 to 2.5, depending on the industry. Both low and high ratios are unfavorable. 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 greater than 3 may indicate an irrational capital structure. But at the same time, it must be taken into account that, depending on the field of activity, the structure and quality of assets, etc., the value of the coefficient can vary greatly.
It should be noted that this ratio does not always give a complete picture. Typically, firms with low inventories and easily obtainable bills of exchange can easily operate at a lower ratio than firms with large inventories and sales of goods on credit.
Another way to check the sufficiency of current assets is to calculate urgent liquidity. Banks, suppliers, shareholders are interested in this indicator, since the company may face circumstances in which it will immediately have to pay some unforeseen expenses. It means that she will need all her cash, securities, receivables and other means of payment, that is, part of the assets that can be turned into cash.
The ratio characterizes the company's ability to repay current (short-term) liabilities at the expense of current assets. It is similar to the current liquidity ratio, but differs from it in that the working capital used for its calculation includes only highly - and medium liquid current assets (money in operating accounts, stock of liquid materials and raw materials, goods and finished products, receivables). debt with short term repayment).
Such assets do not include work in progress, as well as inventories of special components, materials and semi-finished products. The source of data is the company's balance sheet in the same way as for current liquidity, but inventories are not taken into account as assets, since if they are forced to be sold, losses will be maximum among all current assets:
Quick liquidity ratio = (Cash + Short-term financial investments + Short-term receivables) / Current liabilities
Quick liquidity ratio = (Current assets - Stocks) / Short-term liabilities
Kbl = (p. 240 + p. 250 + p. 260) / (p. 610 + p. 620 + p. 660)
Kbl = (p. 1230 + p. 1240 + p. 1250) / (p. 1520 + p. 1510 + p. 1550)
This is one of the important financial ratios that shows what part of the company's short-term liabilities can be immediately repaid from funds in various accounts, in short-term securities, as well as receipts from settlements with debtors. The higher the indicator, the better the solvency of the enterprise. The normal value of the coefficient is more than 0.8 (some analysts consider the optimal value of the coefficient 0.6-1.0), which means that cash and future receipts from current activities should cover the current debts of the organization.
To increase the level of urgent liquidity, organizations should take measures aimed at increasing their own working capital and attracting long-term loans and borrowings. On the other hand, a value of more than 3 may indicate an irrational capital structure, this may be due to the slow turnover of funds invested in inventories, the growth of receivables.
In this regard, the absolute liquidity ratio, which should be more than 0.2, can serve as a litmus test of current solvency. The absolute liquidity ratio shows what part of the short-term debt the organization can repay in the near future at the expense of the most liquid assets (cash and short-term securities).
A financial ratio equal to the ratio of cash and short-term financial investments to short-term liabilities (current liabilities). The source of data is the company's balance sheet in the same way as for current liquidity, but only cash and cash equivalents are taken into account as assets, the calculation formula is as follows:
Absolute liquidity ratio = (Cash + Short-term financial investments) / Current liabilities
Cab = (p. 250 + p. 260) / (p. 610 + p. 620 + p. 660)
Cab = (p. 1240 + p. 1250) / (p. 1520 + p. 1510 + p. 1550)
A coefficient value of more than 0.2 is considered normal. The higher the indicator, the better the solvency of the enterprise. On the other hand, high rate may indicate an irrational capital structure, an overly high proportion of non-performing assets in the form of cash and funds in accounts.
In other words, if the balance of funds is maintained at the level of the reporting date (mainly by ensuring the uniform receipt of payments from counterparties), short-term debt as of the reporting date can be repaid in five days. The above regulatory limitation is applied in foreign practice of financial analysis. At the same time, an exact justification why, in order to maintain a normal level of liquidity Russian organizations the amount of cash should cover 20% of current liabilities, not available.
Net working capital is necessary to maintain the financial stability of the enterprise. Net working capital is defined as the difference between current assets and short-term liabilities, including short-term borrowings, accounts payable obligations equated to it. Net working capital is a part of working capital formed from own working capital and long-term borrowed capital, including quasi-own capital, borrowed funds and other long-term liabilities. The formula for calculating net settlement capital is:
Net Working Capital = Current Assets - Current Liabilities
Chob = p. 290 - p. 690
Chob = p. 1200 - p. 1500
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 reserves for expanding activities. Net working capital must be above zero.
The lack of working capital indicates the inability of the company to repay short-term liabilities in a timely manner. A significant excess of net working capital over the optimal need indicates the irrational use of enterprise resources.
Formulas for calculating liquidity ratios in accordance with international standards described in
In general, a company converts its current assets into cash, and this money is already used to cover liabilities. It follows from this that it is possible to assess the liquidity and solvency of the company by comparing these elements of the balance sheet. The current liquidity ratio does just that. It belongs to the group of indicators of liquidity and solvency.
The indicator of current liquidity (the English equivalent of Current Ratio) - shows the ratio of current assets and current liabilities. Current assets are the medium and highly liquid part of the company's assets. The peculiarity of current assets in comparison with non-current assets is that they can be converted into cash within one year (if the period of one production cycle is more than one year, then within one production cycle). The current liquidity ratio is an indicator of the company's ability to meet current obligations with the help of current assets. The indicator shows how many rubles of working capital the company has for each ruble of current liabilities.
A value within 1-3 is normative, but a value of 2-3 is more desirable. An indicator below the standard indicates a problematic state of solvency, because current assets are not enough to meet current obligations. This leads to a decrease in the credibility of the company on the part of creditors, suppliers, investors and partners. In addition, problems with solvency lead to an increase in the cost of borrowed funds and, as a result, to direct financial losses.
For lenders, the principle is clear: the higher the rate, the better. However, from the point of view of owners and management, an indicator above the normative value is a sign of an inefficient asset structure. More accurate conclusions on this matter can be formed based on asset analysis data. Often the value of the current liquidity indicator above 3 indicates the involvement of excess current assets. This leads to a decrease in the effectiveness of the use of assets. In addition, attracting unnecessary additional expensive financial resources leads to an increase financial expenses. An additional analysis of the structure of assets will confirm or reject this conclusion. It should be noted that the optimal value of the indicator is often conditional and depends on the field of activity, seasonal factors, cooperation agreements with suppliers, etc.
At the same time, the analyst should take into account some features of the current liquidity indicator. The liquidity of certain types of assets may be questionable. For example, part of the receivables may be of poor quality and the company will not be able to pay them within a year. Inventories may also have low liquidity, for example, if they cannot be sold at the market price. Therefore, it is always worth analyzing several indicators that characterize various aspects of the company's liquidity and solvency.
To increase the value of current liquidity, it is necessary to work towards increasing the amount of current assets and reducing the amount of current liabilities. To reduce the amount of current obligations, for example, you can agree on the provision of credit funds for a longer period of time.
Current Liquidity = Current Assets / Current Liabilities
Fig.1. Dynamics of the coefficient (excluding small businesses) by Russian Federation(according to financial statements, in %)
According to the data Federal Service state statistics from 2000 to 2013, the average current liquidity of Russian companies in the economy as a whole was 102.5-136.2. At the same time, the economy functioned efficiently, Western creditors actively provided funds for development Russian companies. That is, companies, in general, were able to meet their current obligations on time, and liquidity, in most cases, below two did not raise questions.
Therefore, when analyzing, it is necessary to understand where the normative value 2 came from and why it is, in most cases, irrelevant. As Gibson points out, for a long period of time, it was 2 that was considered the minimum acceptable value of the indicator. Beginning in the mid-1960s, the current liquidity of a large number of successful companies began to decline. This is due to the improvement of the planning and budgeting process, the improvement of the quality of control accounts receivable and stock movements. To determine the normative value of the indicator, it is necessary to compare the current liquidity of the company with the values of competitors in the industry. In many areas a value below 2 is adequate, while in others the optimal value is much higher. In general, the rule is that the longer the operating cycle, the higher the current liquidity ratio.
Therefore, in general, in the economy, the value of the indicator is below the normative value - at the level of 121.1 at the end of 2014. This suggests that for every ruble of current liabilities in domestic companies there are 1.211 rubles of current assets.
JSC "Web-Innovation-plus"
Unit of measure: thousand rubles.
Current liquidity ratio (2016) = 124/242 = 0.51
Current liquidity ratio (2015) = 157/236 = 0.665
The data obtained show that during 2015-2016 the company could not meet its current obligations on time. At the end of the year, the company had only 0.51 rubles left for each ruble of current liabilities. This leads to a decrease in the credibility of the company. In the event of a systemic liquidity crisis, the company may be declared bankrupt.
1. Finances of organizations [ Electronic resource] Official website of the Federal State Statistics Service - Access mode: http://www.gks.ru/
2. Gibson H. Charles Financial Reporting & Analysis // The University of Toledo, Emeritus. 12th edition. 624p. - ISBN-13: 978-1439080603
