How does the absolute liquidity ratio show the level of solvency

When analyzing economic activityThe company pays much attention to the liquidity indicators. This is due to the fact that liquidity reflects the level of solvency and the availability of a certain amount of funds that can be used for current settlements with suppliers and contractors. There are several indicators by which liquidity is estimated, to which one can include the absolute liquidity ratio. The values ​​of this indicator are used in analytical summaries, compiled on the basis of the annual assessment of balance data.

Variety of liquidity ratiosis calculated by the ratio of assets with the highest degree of liquidity to the company's liabilities for current activities. This economic indicator characterizes the size of the company's short-term debt, which it can repay in the near future. When the absolute liquidity ratio shows a result in the range of 0.2 to 0.25, such a value is usually considered normal.

Analysis of solvency and liquidity of the balance sheetoften used to consider the possibility of concluding contracts with prospective partner companies in the short term. If we estimate the overall liquidity of the balance in the short term, for example, over the time interval in the last three years of operation, we can see how stable the company is, how its liquid assets have changed. On the basis of such data, it is usually decided whether to work with the supplier.

Large companies today have a greater sharehighly liquid assets reflected in the balance sheet. From another point of view, the absolute liquidity ratio shows the ratio of cash, financial resources and their equivalents to the organization's debt for a particular period of time under consideration. To understand what the liquidity indicators of an enterprise are, you need to understand what the concept of "liquidity" in the general sense implies.

So, in the economic literature liquidityThe ability of a company to pay its short-term obligations in time is called. When an enterprise has the ability to realize its current assets as quickly as possible and thereby pay off its debts, it can be considered liquid. In order to keep the liquidity ratio absolute at the proper level, it is necessary to have at the cash desk the balance of free financial resources, which, if necessary, can be directed for the intended purpose. This is due to the fact that, as a rule, fixed assets purchased not for resale purposes, can not be sources of debt repayment. Of the entire group of assets, the most liquid type is considered circulating assets, in particular, money supply, short-term financial loans or receivables that are not yet overdue, but the maturity date has already come. Debt, the payment deadline, as well as other stocks, with all the desire can not be attributed to highly liquid assets. The absolute liquidity ratio shows how a company can be solvent in the short term. The formula for calculating such an absolute liquidity indicator is expressed in terms of the amount of cash and securities sold operatively, divided into short-term obligations.

From the accounting position the ratioabsolute liquidity shows the size of the debt in the context of the current period, which will be possible to pay off at the time of preparing the balance sheet. When calculating the coefficient, the data of the 2nd and 4th sections of the balance are taken as the basis.

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