Low liquidity. Liquidity of money. Liquidity, profitability and solvency: debriefing

Liquidity

Absolute liquidity

Absolute liquidity ratio(English) cash ratio) is a financial ratio equal to the ratio of cash and short-term financial investments to short-term liabilities (current liabilities). The data source is the company's balance sheet in the same way as for current liquidity, but only cash and cash equivalents are taken into account as assets: (line 260 + line 250) / (line 690-650 - 640).

Cal = (Cash + short-term financial investments) / Current liabilities Kal \u003d (Cash + short-term financial investments) / (Short-term liabilities - Deferred income - Reserves for future expenses)

It is believed that the normal value of the coefficient should be at least 0.2, i.e. every day, 20% of urgent obligations can potentially be paid. It shows what part of the short-term debt the company can repay in the near future.

Market Liquidity

The market is considered highly liquid, if it regularly concludes in sufficient quantities purchase and sale transactions of goods circulating on this market and the difference in the prices of applications for purchase (demand price) and sale (offer price) is small. Each individual transaction in such a market is usually not able to have a significant impact on the price of goods.

Liquidity of securities

The liquidity of the stock market is usually estimated by the number of transactions made (trading volume) and the size of the spread - the difference between the maximum prices of buy orders and the minimum prices of sell orders (they can be seen in the glass of the trading terminal). The more deals and the smaller the difference, the greater the liquidity.

There are two main principles for making transactions:

• quotation- placing own orders for the purchase or sale, indicating the desired price.
• market- placing orders for instant execution at current bid or offer prices (satisfaction of quotation orders with the best current price)

Quoted bids form instant liquidity market, allowing other bidders to buy or sell a certain amount of an asset at any time. The question will be the price at which the transaction can be carried out. The more quotation orders placed for a traded asset, the higher its instant liquidity.

Market orders form trading liquidity market, allowing other bidders to buy or sell a certain amount of an asset at a desired price. The question will be in the time when the transaction takes place. The more market orders per instrument, the higher its trading liquidity.

see also

Notes

Literature

• Brigham Y., Erhardt M. Analysis of financial statements // Financial management = Financial management. Theory and Practice / Per. from English. under. ed. Ph.D. E. A. Dorofeeva .. - 10th ed. - St. Petersburg. : Peter, 2007. - S. 121-122. - 960 p. - ISBN 5-94723-537-4

Categories:

• Financial ratios
• The financial analysis
• Economic terms
• Money turnover
• Investments
• Exchanges
• Corporate Governance

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Synonyms:

• Colleagues of Santa Claus
• Exchange

See what "Liquidity" is in other dictionaries:

LIQUIDITY Financial vocabulary

LIQUIDITY- (liquidity) The degree to which the assets of an organization are liquid (See: liquid assets (liquid assets), which allows it to pay its debts on time, as well as to use new investment opportunities. Finance. Sensible ... ... Financial vocabulary

liquidity- 1. The ability of assets to turn into cash. Measured using coefficients. 2. A measure of the ratio between cash or marketable assets and the need of the enterprise for these funds to pay off those that have come ... ... Technical Translator's Handbook

LIQUIDITY- (liquidity) 1. The ability of assets to easily and quickly turn into money at an easily predictable price. In addition to money itself and deposits in non-bank financial firms such as building societies, short-term securities such as ... ... Economic dictionary

LIQUIDITY- LIQUIDITY, liquidity, pl. no, female (fin. trade. neol.). distraction noun to liquidity. liquidity of goods. liquidity of liabilities. Explanatory Dictionary of Ushakov. D.N. Ushakov. 1935 1940 ... Explanatory Dictionary of Ushakov

Liquidity- Liquidity (Liquidity) - 1. In a general sense - the ability of assets to be sold on the market: quickly and without high costs (high L.) or slowly, at high costs (low L.) Cash has absolute L.. Other assets… … Economic and Mathematical Dictionary

Liquidity- (liquidity) The degree to which the assets of an organization are liquid (see: liquid assets, which allows it to pay its debts on time, as well as to use new investment opportunities. Business. Smart ... ... Glossary of business terms

What is liquidity? This question arises among people who are far from economic realities and experienced businessmen. Liquidity is the ability to quickly turn assets into their cash equivalent at good prices. There are highly liquid and low liquid values, as well as illiquid assets. The concept of liquidity can be applied to any firms, securities, real estate, vehicles and various property owned by an enterprise or an individual. Usually the highest liquidity has the money that rotates in a given economic system.

liquidity ratio

The liquidity of any organization and company is calculated according to several financial indicators, one of which - the liquidity ratio - is calculated using special formulas. Using this ratio, you can compare the value of current assets, which have a different degree of liquidity, with the amount of current liabilities. There are coefficients:

• general liquidity or coverage, which shows how the company is able to meet its short-term obligations;
• current or quick liquidity, which show what part of the company's obligations can be repaid at the expense of cash, financial investments;
• absolute liquidity, allowing to determine short-term obligations, the debt on which the company can repay urgently.

Current liquidity

To find out what part of current liabilities a firm or organization can repay from available cash or cash equivalents, investments and receivables, you need to know what fast or current liquidity is. The quick liquidity ratio is calculated using a special formula. The indicator of this type of liquidity indicates how solvent an organization or firm is, how quickly it can pay off current obligations, paying off debtors on time. Usually a quick ratio of 0.6 is considered acceptable.

Balance liquidity

The financial indicator - balance sheet liquidity - shows the extent to which the company's liabilities are covered by assets that can be converted into money within the timeframe corresponding to the maturity of the liabilities. The solvency of any firm and enterprise depends on this indicator. To find out how favorable the financial position of the enterprise is, it is necessary to know how much the value of current assets exceeds short-term liabilities. The larger this value, the more prosperous the company in terms of liquidity. Of particular importance is the determination of the liquidity of the balance sheet during liquidation in case of bankruptcy of an enterprise or company.

Liquidity analysis

To analyze the liquidity of the balance sheet of a company or organization of any form of ownership, assets are grouped according to the degree of liquidity - from the fastest to assets with slow liquidity. The correct analysis of the liquidity of assets is carried out in the following order:

• the most liquid assets;
• quickly implemented;
• slowly implemented;
• hard-to-sell assets.

With regard to liabilities, the most urgent liabilities are analyzed first, then short-term liabilities, long-term and finally, permanent liabilities.

Absolute liquidity

If you need to calculate the reliability of a company or quickly liquidate it, you need to know its financial performance. One of them - absolute liquidity - is a ratio showing how much of short-term debt can be repaid immediately. The absolute liquidity ratio or Cashratio shows how much a firm or enterprise is able to repay short-term immediately. This indicator is calculated as the ratio of current assets that can be immediately sold to the current obligations of the debtor.

Liquidity indicators

Liquidity is the most important indicator of the efficiency and reliability of the enterprise. It shows how creditworthy the company is. In order to know exactly how promising a particular company is, it is necessary to analyze their work. When analyzing the activities of any company, it is necessary to take into account the liquidity indicators of the balance sheet. The main coefficients are:

• absolute liquidity;
• critical evaluation;
• maneuverability of functioning capital;
• current liquidity;
• self-sufficiency.

Liquidity of assets

The company's assets that can be quickly and profitably turned into money are called liquid. The most highly liquid asset is the funds that the company has on hand, on accounts, deposits. Good liquidity of assets in securities that can be profitably sold on the stock exchange at any time. The least liquid are stocks of raw materials, materials, the cost of work in progress. The accounting analysis of the liquidity of the balance sheet is based on the principle of increasing liquidity, the most important in compiling the balance sheet are three coefficients:

• absolute liquidity;
• quick liquidity;
• current liquidity.

Bank liquidity

Any organization can be considered in terms of liquidity, including financial ones. Such a concept as the bank's liquidity - its ability to quickly fulfill obligations to depositors, investors, creditors - is very important when choosing a bank. Liabilities of a financial institution can be real and potential or contingent. Bank liquidity factors are external and internal. Internal factors are:

• bank management and its image;
• the quality of the funds raised;
• the quality of the bank's assets;
• conjugation of assets and liabilities.

External liquidity factors are;

• the state of the economy in the country;
• development of the securities market;
• effectiveness of Bank of Russia supervision;
• refinancing system.

Enterprise liquidity

The liquidity of the enterprise is the ability to pay off its debts quickly and profitably. The degree of liquidity is determined by the ratio of the asset balance and liabilities and determines the stability of the enterprise. A company's liquid assets are all those assets that can be converted into cash and used to pay off debts. These are cash on hand, on accounts and deposits, securities that are listed on the stock exchange, working capital that can be quickly realized.

There is a general (current) and urgent liquidity of the enterprise. The total is the ratio of the sum of current assets and liabilities at the beginning and end of the year. Analysis of the liquidity of the enterprise is determined by the coefficients. If the current liquidity ratio is below 1, this means that the company does not have stability. The normal indicator is over 1.5.

Market Liquidity

Liquidity is an important indicator of any market. In order to make transactions on the stock market or the so popular Forex market, you need to know which exchange instruments can be bought quickly and sold just as quickly. Market liquidity is the ability to make a profitable deal with stocks, futures, currency pairs, without losing in price and time. In other words, the market participant will receive any asset at the best market price as quickly as possible. Money has the highest liquidity - it can be instantly exchanged for goods. Real estate has low liquidity.

Liquidity of securities

The liquidity of securities is the ability to turn them into money quickly and profitably, and this opportunity is constant. It is this characteristic that is taken as the basis for understanding how effective certain securities are. High liquidity will allow the investor to instantly receive cash for securities.

The main characteristic of the liquidity of securities is the spread - the difference between the prices for sale and purchase. The smaller the spread, the higher the liquidity. Liquidity is influenced by the attractiveness of the securities of a particular issuer in terms of investment. It can be calculated if the performance of the enterprise and the market valuation of its securities are known.

Liquidity of money

Money has the highest, one might say, perfect liquidity. The liquidity of money means that it can be used at any time to get the goods or services that are needed. Money is a means of payment in any country in the world. They are most protected from fluctuations in their value. Universality as a means of payment, that is, liquidity, makes money the most sought-after asset. Cash has the highest liquidity, then funds on the current deposit. In last place are securities that still need to be sold on the stock market.

The more liquid it is. For a product, liquidity will correspond to the speed of its sale at a nominal price, without additional discounts.

Absolute liquidity

Absolute liquidity ratio(eng. Cash ratio) - 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 balance sheet of the company in the same way as for current liquidity, but only cash and cash equivalents are taken into account in the assets: (1250+1240) / (1500-1530-1540).

Kal \u003d A1 / (P1 + P2) Cal = (Cash + short-term financial investments) / Current liabilities Kal \u003d (Cash + short-term financial investments) / (Short-term liabilities - Deferred income - Reserves for future expenses)

It is believed that the normal value of the coefficient should be at least 0.2, that is, 20% of urgent obligations can potentially be paid every day. It shows what part of the short-term debt the company can repay in the near future.

Market Liquidity

Liquidity of securities

The liquidity of the stock market is usually assessed by the number of transactions made (volume tradings) and the size of the spread - the difference between the maximum prices of buy orders and the minimum prices of sell orders (they can be seen in the glass trading terminal). The more deals and the smaller the difference, the greater the liquidity.

There are two main principles for making transactions:

• quotation- placing own orders for the purchase or sale, indicating the desired price.
• market- placing orders for instant execution at current bid or offer prices (satisfaction of quotation orders with the best current price).

Quoted bids form instant liquidity market - the author indicates the volume, the desired price and waits for the satisfaction of the application, allowing other bidders to buy (or sell) a certain amount of the asset at any time at the price specified by the author of the application. The more quotation orders placed for a traded asset, the higher its instant liquidity.

Market Orders form trading liquidity market - the author indicates the volume, the price is formed automatically based on the best prices from current quotation orders, which allows the authors of quotation orders to buy (or sell) a certain amount of an asset. The more market orders per instrument, the higher its trading liquidity.

Many do not even know what liquidity is. This word, which comes from the Latin “liquidus” (“fluid”, “liquid”), is most often understood as the mobility of assets, which ensures the ability of their owner to pay obligations without interruption and on time.

To date, there are several concepts related to each other: liquidity of assets, property, balance sheet, enterprise, market, money, stock market. The liquidity of the balance sheet is the basis of the liquidity of the enterprise, since it is more important for it to have cash than profit. Lack of money often leads to a deplorable financial condition.

It is noteworthy that the liquidity of the balance sheet is a more capacious concept than the liquidity of property. This term is applied to enterprises, banks, stock markets, various organizations, securities. The ratio of the amount of cash and assets sold in the shortest possible time and the amount of current liabilities (liabilities) determine the degree of liquidity. The concept of "liquid" refers to any asset that is quickly convertible into money. This category includes:

• stocks and bonds of large joint-stock companies;
• state securities;
• term bills of well-known companies;
• undisputed receivables;
• easily realizable values;
• precious metals.

The larger the share of such assets, the higher the liquidity.

Types of assets

Liquidity is the ability of values ​​(assets) to be sold as soon as possible at a near-market price. Every organization has the following types of assets:

• illiquid, convertible into cash at book value only after a long period of time and those that are never realized. They include various structures; equipment and machines that are prepared for installation; intangible assets; Construction in progress; long-term financial investments; overdue receivables; stocks of products that have not found a market;
• low-liquidity (slowly sold), sold at a cost close to the market for a significant period of time. These include some fixed assets, certain types of stocks, long-term debt of debtors;
• liquid, sold relatively quickly. They include short-term receivables; some stocks; company securities;
• highly liquid, which are sold very quickly. These include money in accounts, at the cash desk; short-term investments; bills; government securities.

Liquidity of enterprises

The liquidity of an enterprise is the ability to pay short-term (current) accounts payable through the sale of current assets. Financial analysis evaluates its solvency. Its main instrument is financial indicators, called liquidity ratios. They are calculated according to the financial statements. These indicators characterize the nominal ability of the enterprise to repay the current debt with current assets. Often their calculation is accompanied by a balance modification, which is carried out to obtain an adequate assessment of the liquidity of different types of assets.

All values ​​differ in different levels of liquidity. It is because of this that some components of the balance sheet of the enterprise, when it is modified, are taken out of the limits of assets. When determining liquidity ratios, they are not taken into account. There are 4 groups of assets:

• the most liquid (A1);
• implemented quickly (A2);
• implemented slowly (A3);
• implemented with difficulty (A4).

Obligations (liabilities) are divided into 4 groups:

• the most urgent (P1);
• short-term (P2);
• long-term (P3);
• permanent (P4).

An enterprise can be called liquid only when the following conditions are met: A1> P1, A2> P2, A3> P3, A4<П4 (обладает регулярным характером). При выполнении 3 первых неравенств, последнее выполняется обязательно.

Enterprise liquidity indicators

When assessing the degree of solvency of an enterprise, the following coefficients are determined:

1. Ktl (current liquidity), characterizing its ability to repay current accounts payable with current assets. It is also referred to as the debt coverage ratio. It characterizes the solvency, taking into account the expected receipts of receivables. Simply put: if current assets > current liabilities (liabilities), then the company is operating successfully. The current liquidity ratio is calculated as follows:

Ktl \u003d (OA) / KO,

where OA - current assets, KO - short-term liabilities;

Ktl \u003d (A1 + A2 + A3) / (P1 + P2).

The higher the Ktl indicator, the higher the solvency. Different enterprises may have different Ktl. An indicator that is in the range of 1.5-2.5 is considered normal.

2. Kbl (quick liquidity), reflecting the company's ability to pay off short-term liabilities in the event of problems with the sale of products. The quick liquidity ratio is calculated only for certain types of assets. It is equal to the ratio of liquid current assets (TA) and liabilities (TO):

Kbl \u003d (TA–Z) / TO,

where З - reserves;

Kbl \u003d (A1 + A2) / (P1 + P2).

Its optimal value is considered to be that which fits into the range of 0.7-1.0. The growth of Kbl associated with the increase in receivables is not a positive indicator of economic activity.

3. Kal (absolute liquidity), which establishes how much of the debt can be quickly repaid. Estimated data is taken from form No. 1, but only cash and assets equivalent to them are included in the assets of the enterprise. Cal is determined by the following formulas:

Kal \u003d (DS + KV) / (KP - DBP - RBR),

where DS - cash; KP - short-term liabilities; RBR - reserves for future expenses; KV - capital investments; DBP - future income;

Kal \u003d A1 / (P1 + P2).

The toughest of the solvency indicators is the absolute liquidity ratio. Its normal value cannot be less than 0.2, which means that the company will be able to pay up to 20% of current liabilities every day.

Market Liquidity

This concept is understood as the reaction of the market to fluctuations in supply / demand by attracting buyers and sellers. In order to recognize it as liquid, there must be regular purchase and sale transactions on it in sufficient quantities. The difference in the price of demand (bids for purchase) and the price of offer (sale) should be small. In a highly liquid market, any one transaction does not have a significant impact on the cost of goods. In other words: market liquidity is its ability to absorb fluctuations in supply / demand without significant fluctuations in commodity prices.

The main property of money is its liquidity. It represents the possibility of their use as a means of payment in the acquisition of goods and other benefits. This indicator indicates their ability not to lose their nominal value. Money, more than other assets, is protected from fluctuations in its value. As a rule, money has absolute liquidity within a certain economic system, although it is not always exchanged for goods in a short time. Perfect monetary liquidity is possible in a stable monetary system.

Liquidity of securities

This term, used in relation to the stock market, means the ability to buy/sell any exchange instrument (currency pair, shares, futures) in the shortest possible time without losing their price. It means their comparative quantity, which is exchanged for money in a short period of time without a serious change in their market value. Low liquidity is proof that securities will not be sold/purchased within a certain period of time without significant financial losses.

High liquidity shows that securities can be quickly sold / bought without a serious impact of such an operation on the existing market price level. This type of liquidity is estimated by the number of transactions (trading volume). The spread (the difference between the highest bid prices and the lowest bid prices) is also taken into account. At the same time, the greater the number of transactions and the smaller the spread, the higher the liquidity of securities.

Real estate.

If we evaluate all financial instruments, real estate is a low-liquid instrument. But if we consider only one of them, then again there is a division into low and highly liquid.

For example, luxury apartments, high-value country houses are low-liquid real estate. To sell it at a fair market price, you need to spend a lot of time (several months). And even then, in the end, you still have to throw off the price to the buyer.

And if you take economy-class housing, and even in a good location in the city (somewhere in the center, or in a normal area), then you can consider it as highly liquid real estate due to the fact that there is always a demand for it and it can be easily sold literally in a couple of weeks, in extreme cases 1-2 months.

Why is liquidity so important?

The concept of liquidity is important for investors whose goal is to make a profit from invested funds. And in the event of any negative circumstances in the financial market, they should be able to quickly get rid of unnecessary assets at affordable prices. And transfer the money received to another most promising (and more profitable) financial instrument.

Therefore, when investing money, an investor always tries to choose highly liquid instruments.

Suppose, if we consider the real estate market, then with a downward trend, you can most quickly get rid of inexpensive real estate. Those. if choosing between ordinary Khrushchev apartments and premium-class housing, the investor will choose the former, due to their high liquidity.

The same is true for the stock market. In the event of a possible collapse of the stock market (which happens periodically), the investor must quickly and with minimal losses get rid of the asset falling in price. And if he has only low-liquid shares in his portfolio, on which there is no buyer, then it remains only to watch how the value of the shares he bought decreases. And in the mind to count the losses.