The term liquidity. What is enterprise liquidity: an explanation in simple words

Definition

Liquidity- the ability of assets to be quickly sold at a price close to the market. Liquidity is the ability to turn into money (see the term “liquid assets”).

Typically, a distinction is made between highly liquid, low liquid and illiquid values ​​(assets). The easier and faster you can get the full value of an asset, the more liquid it is. For a product, liquidity will correspond to the speed of its sale at the nominal price.

In the Russian balance sheet, the company's assets are arranged in descending order of liquidity. They can be divided into the following groups:

A1. Highly liquid assets (cash and short-term financial investments)

A2. Quickly realizable assets (short-term receivables, i.e. debt for which payments are expected within 12 months after the reporting date)

A3. Slowly moving assets (other current assets not mentioned above)

A4. Hard to sell assets (all non-current assets)

Balance sheet liabilities according to the degree of increasing maturity of obligations are grouped as follows:

P1. The most urgent obligations (raised funds, which include current accounts payable to suppliers and contractors, personnel, budget, etc.)

P2. Medium-term liabilities (short-term loans and borrowings, reserves for future expenses, other short-term liabilities)

P3. Long-term liabilities (section IV of the balance sheet "Long-term liabilities")

P4. Permanent liabilities (organization's own capital).

To determine the liquidity of the balance sheet, you should compare the results for each group of assets and liabilities. He considers ideal liquidity to be one in which the following conditions are met:

A1 > P1
A2 > P2
A3 > P3
A4< П4

For example, the above liquidity analysis by group can be performed automatically in the Your Financial Analyst program.

Calculation of liquidity ratios

In the practice of financial analysis, there are three main indicators of liquidity.

Current liquidity

The 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). This is the most common and frequently used liquidity indicator. Formula:

Ktl = OA / KO

where: Ktl - current liquidity ratio;
OA - current assets (attention: until 2011, long-term receivables were indicated in the Balance Sheet as part of current assets - they must be excluded from current assets!);
KO - short-term liabilities.

The ratio reflects the company's ability to pay off current (short-term) obligations using only current assets. The higher the indicator, the better the solvency of the enterprise.

A coefficient value of 2 or more is considered normal (this value is most often used in Russian regulations; in world practice, 1.5 to 2.5 is considered normal, depending on the industry). A value below 1 indicates a high financial risk associated with the fact that the company is not able to reliably pay current bills. A value greater than 3 may indicate an irrational capital structure.

Quick liquidity

The quick liquidity ratio (sometimes called intermediate or quick liquidity; English quick ratio, QR) is a financial ratio equal to the ratio of highly liquid current assets 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 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 formula:

Kbl = (Short-term accounts receivable + Short-term financial investments + Cash) / Current liabilities

The ratio reflects the company's ability to pay off its current obligations 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 is 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 funds close to it in essence are taken into account as assets:

Cal = (Cash + short-term financial investments) / Current liabilities

Unlike the two above, this coefficient is not widely used in the West. According to Russian regulations, a coefficient value of at least 0.2 is considered normal.

The current, quick and absolute liquidity ratio can be automatically calculated using the balance sheet data in the program "

Liquidity of the enterprise- this is the ability to repay the company’s debts in a short time. The degree of liquidity is determined by the ratio of the volume of liquid funds at the disposal of the enterprise (balance sheet asset) to the amount of existing debts (balance sheet liability). In other words, the liquidity of an enterprise is an indicator of its financial stability.

Liquid funds include all assets that can be converted into money and used to pay off the debts of an enterprise: cash, deposits in bank accounts, various types of securities, as well as elements of working capital that can be quickly sold.

There are general (current) and urgent liquidity. The total liquidity of an enterprise is defined as the ratio of the amount of current assets and the amount of current liabilities (liabilities), determined at the beginning and end of the year. The current liquidity ratio shows the company's ability to pay off current liabilities using current assets. If the value of the coefficient is below 1, then this indicates a lack of financial stability of the enterprise. A value above 1.5 is considered normal. To calculate the coefficient, use the formula:

Current liquidity ratio = (Current assets – Long-term accounts receivable – Debt of founders for contributions to the authorized capital) / Current liabilities.

The immediate liquidity of an enterprise is determined by how quickly accounts receivable and inventories can be converted into cash. To determine the quick (quick) liquidity ratio, the formula is used:

Quick ratio = (Current assets - Inventories) / Current liabilities

Absolute liquidity is the ratio of the amount of funds available to the enterprise and short-term financial investments to current liabilities. The absolute liquidity ratio is calculated using the formula:

The absolute liquidity ratio of the enterprise = (Cash + Short-term investments) / Current liabilities.

A coefficient of at least 0.2 is considered normal.

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Comment

Liquidity (from the Latin liquidus - liquid, flowing) is an economic term denoting the ability of assets to be quickly sold at a price close to the market price. Liquid – convertible into money.

Typically, a distinction is made between highly liquid, low liquid and illiquid values ​​(assets). The easier and faster an asset can be exchanged for its full value, the more liquid it is. For a product, liquidity will correspond to the speed of its sale at a nominal price, without additional discounts.

For example,assetsenterprises reflected inbalance sheet, have different liquidity (descending):

• cash in the accounts and cash registers of the enterprise
• bank bills, government securities
• current accounts receivable, loans issued, corporate securities (shares of listed enterprises, bills of exchange)
• stocks of goods and raw materials in warehouses
• machines and equipment
• buildings and structures
• unfinished construction

The term “liquidity” is also used in relation to banks, enterprises (firms), markets, securities, etc. The meaning of the term in each of these contexts is described in the sections below.

Liquidity of the enterprise

This, as a rule, determines the availability of opportunities to repay the company’s debts in the shortest possible time. The level of liquidity of an enterprise is determined by the ratio of the volume of liquid funds that are in use by the enterprise (balance sheet asset) to the amount of existing debts (balance sheet liability). In other words, the liquidity of an enterprise is always an indicator of its financial stability.

Liquid funds include all assets that can be converted into money and can be used to pay the organization’s debts: cash, deposits in bank accounts, all kinds of securities, and also elements of working capital that can be quickly realized.

A distinction is made between the liquidity of an enterprise, both general, that is, current, and urgent. When determining the overall liquidity of an organization, it is defined as the ratio of the amount of current assets and the amount of current liabilities (liabilities), determined at the beginning and end of the year. The current ratio indicates the organization's ability to pay current liabilities from current assets. If the value of the coefficient is less than one, then this is an indicator of the lack of financial stability of the organization. A figure above one and a half can be considered normal. To calculate the coefficient use the formula:

Current liquidity ratio = (Current assets – long-term accounts receivable – debt of founders for contributions to the authorized capital) / current liabilities.

The immediate liquidity of an enterprise is determined by how quickly accounts receivable and inventories can be converted into cash. In order to determine the quick (quick) liquidity ratio, use the formula:

Quick ratio = (current assets - inventories) / short-term liabilities.

Absolute liquidity is understood as the ratio of the amount of cash and short-term financial investments available to the organization to current liabilities. The absolute liquidity ratio of an enterprise can be calculated using the formula:

The absolute liquidity ratio of the enterprise = (cash + short-term investments) / current liabilities.

A normal coefficient is considered to be at least two tenths. The liquidity of an enterprise acts as an external manifestation of financial stability, the essence of which is the provision of current assets with long-term sources of formation. More or less current liquidity (not liquidity) is determined by a greater or lesser degree of security (unsecured) of current assets from long-term sources.

An enterprise is considered liquid if it can cancel short-term accounts payable for the current sales account (current) assets. An enterprise can be a liquid to a greater or lesser extent, since current assets include their various types, where there are easily transferable and difficult to sell assets. Based on liquidity, current assets can be divided into several groups conditionally. In economic analysis, a system of financial ratios is used that expresses the liquidity of an enterprise: Absolute liquidity index (urgency ratio).

This is measured as the ratio of cash and marketable short-term securities to short-term accounts payable. This indicator gives a general idea of ​​how much of this debt can be canceled for the balance sheet creation date. Values ​​of this coefficient of 0.2 – 0.3 are considered acceptable. Specified (interim) liquidity ratio. It is measured as the ratio of cash, marketable securities and accounts receivable to short-term accounts payable.

This indicator reflects that portion of current liabilities that can be canceled not only by available cash and securities, but also by expected receipts for products shipped, work performed, or services provided (ie, the accounts receivable account). The recommended cost of this indicator is the cost – 1:1. It should be taken into account that the justification of conclusions on this ratio significantly depends on the “quality” of receivables, which is in relation to its origin and the financial condition of the debtors. A large share of doubtful accounts receivable worsens the financial condition of the organization.

Current ratio

The overall liquidity ratio or coverage ratio characterizes the overall security of an organization with current assets. It is the ratio of the actual value of all current assets (assets) to current liabilities (liabilities). When calculating this indicator, it is recommended to subtract from the total amount of current assets the amount of value added tax on purchased assets, as well as the amount of expenses for the future period. At the same time, short-term liabilities (liabilities) must be reduced by the amounts of future income, consumption funds, and also benefits of upcoming expenses and payments.

This indicator allows you to determine the proportions of current assets that cover short-term liabilities (liabilities). The cost of this indicator should do at least two. Also, the safety characteristics of the indicator of an organization with its own current assets are applied. If the current liquidity ratio at the end of the reporting period is less than two and the safety coefficient of the organization with its own current assets at the end of the reporting period is less than 0.1, then the structure of the organization’s balance sheet is recognized as unsatisfactory, and the organization is bankrupt.

If one of these conditions is met and the other is not, the possibility of restoring the solvency of the enterprise is assessed. It is necessary to know about the real possibility of its recovery in order to make decisions that the ratio of the calculated current liquidity ratio to its established value, equal to two, was greater than one.

Balance sheet liquidity

The current solvency of an enterprise is directly influenced by the liquidity of its current assets (the ability to convert them to cash or use them to reduce liabilities).

Assessment of the structure and quality of current assets from the point of view of their liquidity is called liquidity analysis. In the case of liquidity analysis, a comparison of the balance sheet of assets, grouped in terms of their liquidity, with liabilities, grouped in terms of their calculation, is performed. The calculation of liquidity ratios allows you to determine the degree of safety of short-term obligations with liquid funds.

Balance sheet liquidity is the degree to which the enterprise's liabilities are covered by its assets, and what speed of transformation into money corresponds to the period of repayment of liabilities. Changes in the level of liquidity can also be assessed by the dynamics of the size of the company's own current assets. Since this size represents the balance after all short-term liabilities have been settled, its increase will correspond to an increase in the level of liquidity.

Market liquidity

The term liquidity of a market or financial instrument is used to describe how often and in what volume trading occurs. Markets that provide liquidity are also called liquidity pools.

In order for a financial instrument to be sold or bought, there must be a buyer willing to buy it. High liquidity means that a large number of market participants are ready to act as a second party to trade. This can be achieved either through individual traders acting as counterparties, or through large holders of financial instruments willing to take part in the transaction.

Liquidity in the market is good for all market participants as it reduces risk and provides more opportunities to buy or sell at the desired price. The demand for greater liquidity is one of the key reasons why online trading benefits the economy. The cost of trading is reduced, allowing traders to trade with much less capital without the huge costs of spreads.

Liquidity of securities

All securities can be divided into three main groups according to the degree of their liquidity - that is, according to how quickly they can be sold.

There is a concept of highly liquid, conditionally liquid and illiquid securities.

Highly liquid securities include, first of all, those that are traded on the stock exchange and in trading systems.

A stock exchange is a place where trading in securities is organized, records of transactions with them are kept and the fulfillment of their obligations by the seller and buyer is monitored. The largest stock exchanges are the Moscow Interbank Currency Exchange, the Moscow Stock Exchange, the St. Petersburg Stock Exchange, the St. Petersburg Currency Exchange, and the Yekaterinburg Stock Exchange.

Conditionally liquid securities include securities traded on the so-called over-the-counter market, that is, those securities that are not included in the quotation lists of exchanges and trading systems for one reason or another (as a rule, they do not meet the requirements imposed by exchanges for financial the state of the issuer and the parameters of the security), but, nevertheless, of some interest to professional participants in the stock market.

Securities, orders for which are placed in information systems, are classified as conditionally liquid because, according to the data of these systems, one can only approximately judge the presence of real demand for them, since information systems do not provide information on the number of actually concluded transactions in the over-the-counter market and real prices of these transactions.

There are significantly more types of securities traded on the over-the-counter market than on the exchange market. Moreover, they all have different liquidity, that is, there is different demand for them. For some types of securities, such as promissory notes of Sberbank or Gazprom, demand almost always exists and their real liquidity is no lower, and sometimes even higher, than that of securities traded on the exchange market. In addition to such securities, there are also securities that find their buyer, although this requires some effort to be applied to this type of paper; these mainly include shares of medium-sized Russian enterprises, some bills and municipal bonds.

The concept of illiquid securities is very conditional. When they talk about illiquid securities, they mean that there are no applications for them in information systems. As a rule, this means that they cannot interest a sufficiently wide range of buyers, either because they are not sufficiently backed by real assets, or because they are not sufficiently known to a wide range of buyers.

Shares of closed joint stock companies

In accordance with the Law “On Joint-Stock Companies” and the Civil Code of the Russian Federation, shareholders of closed joint-stock companies have a pre-emptive right to purchase shares, that is, before offering them to anyone, it is necessary to offer to purchase these shares to other shareholders of this enterprise, and only in that case , if they refuse to purchase these securities, and then the enterprise itself refuses to purchase them, you can begin selling them on the market. In this case, the same difficulties will arise as in the case of shares mentioned above. As for preferred shares of closed joint stock companies, in most cases the probability of their sale is practically zero.

In addition to shares, illiquid securities also include bonds of a number of constituent entities of the Russian Federation that refused to redeem them or pay coupon income on them. Illiquid securities also include a huge variety of bills of exchange issued by unknown legal entities or blacklisted due to the refusal of the organization that issued them to pay them.

Liquidity of money

The most important property of money is its high liquidity. Liquidity refers to the ability of any property, i.e. assets, serve as a means of payment or become a means of payment.

In principle, many types of assets have the property of liquidity. For example, gold bars have high liquidity, despite the fact that gold has ceased to play the role of money. Gold can be relatively easily converted into the currency of any country, which can serve as a means of payment. However, in order to convert gold into cash or non-cash money, a certain amount of time is required. This operation is also associated with small costs associated with paying for the services of agents involved in the purchase and sale of gold.

An outdated TV, on the contrary, has very low liquidity, since selling it, i.e. converting it into a means of payment is almost impossible. Selling such a TV will take a lot of time and pay large commissions.

Cash, banknotes, directly serve as a means of payment, so they have absolute liquidity. Demand deposits have very high, almost absolute liquidity, giving the right to issue checks. The level of liquidity of time and savings deposits and government bonds is somewhat lower, but also very high.

The liquidity factor significantly influences the decisions made by firms and households. Under other market conditions, firms and households prefer perfectly liquid cash and almost perfectly liquid demand deposits. But this type of money has a significant drawback: cash does not generate income, and the interest paid to depositors on demand deposits is low and, as a rule, only compensates for the general increase in prices. Therefore, the real income on these deposits is zero.

The liquidity of time deposits and savings deposits is slightly lower than the liquidity of cash. But these deposits bring real income in the form of interest paid on these deposits.

The liquidity of government bonds and government short-term obligations (GKOs) is even slightly lower. They cannot directly serve as money, but they are easily sold at a price that corresponds to their face value.

According to the liquidity criterion, modern credit money is grouped into several monetary aggregates. The monetary aggregate is an indicator of the money supply, determined by the level of its liquidity.

The following monetary aggregates exist:

• MO – cash, - cash + demand deposits;
• M2 – cash + demand deposits + savings deposits + small time deposits;
• MH – cash + demand deposits + savings deposits + small time deposits + large time deposits;
• the entire money supply expressed by the MZ aggregate +.1 + savings bonds + short-term government obligations (bills) + commercial bills.

Bank liquidity

Bank liquidity is the ability of a credit institution to fulfill its financial obligations in full and on time.

The term “organizational liquidity” should be distinguished from another financial term – “liquidity”, which means the ability to quickly and with minimal losses convert an asset into cash.

The liquidity of a financial organization is determined by the ratio of available assets to monetary obligations to be fulfilled. In this case, two points must be taken into account.

1. Firstly, assets can be not only cash, but also other valuables that, from a financial point of view, have the property of liquidity.
2. Secondly, the liquidity of an organization is a concept that is closely related to time. There is a bank's current liquidity - the ratio of assets and upcoming payments immediately. It can be calculated for any other period. For example, monthly liquidity is the ratio of receipts to payments during the month, etc.

The concept of bank liquidity is opposed to the concept of profitability. Excessively high liquidity reduces the profitability of operations. If reserves are high, then less cash is used for investments. An extreme case: at the time of creation of a credit organization, all its funds are in a correspondent account with the Central Bank. Liquidity reaches 100%, and profitability is zero, since investments have not yet been made. As the bank develops its activities, it attracts money from depositors and issues loans. At the same time, profitability increases and liquidity decreases.

At the same time, current investors may demand the return of their funds at any time. Thus, excessively low liquidity is associated with the risk of failure of the financial institution. To prevent this from happening, regulators introduce liquidity standards.

There are several sources of bank liquidity. Internal funds include own funds - in cash and on correspondent accounts, other assets that can be converted into money over a certain period: a loan portfolio, if assigned, securities, etc.

In addition, it is customary to allocate external sources of liquidity: funds that can be quickly attracted if necessary. These are interbank loans, as well as loans from central banks. In their activities, credit institutions use different methods of liquidity management. In particular, they draw up so-called payment calendars, reflecting upcoming receipts and debits of funds, and calculate payment items. Situations where cash is temporarily insufficient to meet current financial obligations, while the total value of assets exceeds total debt, are called cash gaps.

Liquidity

Absolute liquidity

Absolute liquidity ratio(English) Cash ratio) - 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: (line 260 + line 250) / (line 690-650 - 640).

Cal = (Cash + short-term financial investments) / Current liabilities Cal = (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 how much of the short-term debt the company can pay off in the near future.

Market liquidity

The market is considered highly liquid, if purchase and sale transactions for goods traded on this market are regularly concluded on it in sufficient quantities 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 capable of having a significant impact on the price of the product.

Liquidity of securities

The liquidity of the stock market is usually assessed 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 order book of the trading terminal). The more transactions and the smaller the difference, the greater the liquidity.

There are two basic principles for making transactions:

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

Quotation bids are formed instant liquidity market, allowing other trading participants 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 bids are placed on a traded asset, the higher its instant liquidity.

Market orders form trading liquidity market, allowing other trading participants to buy or sell a certain amount of an asset at a desired price. The question will be when the transaction will take place. The more market orders there are for an 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 / Transl. from English under. ed. Ph.D. E. A. Dorofeeva.. - 10th ed. - St. Petersburg. : Peter, 2007. - pp. 121-122. - 960 s. - ISBN 5-94723-537-4

Categories:

• Financial ratios
• Financial analysis
• Economic terms
• Money circulation
• Investments
• Exchanges
• Corporate governance

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Synonyms:

• Colleagues of Santa Claus
• Exchange

See what “Liquidity” is in other dictionaries:

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