Finance:Liquidity ratio
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Short description: Accounting concept
In accounting, the liquidity ratio expresses a company's ability to repay short-term creditors out of its total cash. It is the result of dividing the total cash by short-term borrowings. It shows the number of times short-term liabilities are covered by cash. If the ratio is greater than 1.0, it means fully covered.
The formula is: LR = liquid assets/short-term liabilities
Variants
Liquidity ratios measure how quickly assets can be turned into cash in order to pay the company's short-term obligations. The following metrics can also be considered to measure the liquidity of a firm.
- Current ratio measures whether a firm has enough resources to meet its short-term obligations. It is the ratio of a firm's current assets to its current liabilities.
- Quick ratio (also known as an acid test) measures the ability of a company to use near-cash ("quick") assets to eliminate current liabilities immediately.
- Reserve requirement, a bank regulation that sets the minimum reserves each bank must hold.
- Working capital, a financial metric that represents operating liquidity available.
- Crisis liquidity ratio. A number of Bulgarian academic and accounting publications discuss the "crisis liquidity ratio" (CLR), defined as:
- CLR = current assets − receivables/current liabilities
- and recommend its use under stressed conditions, as receivables may be less reliably realizable during crises. Several authors present CLR as a conservative variant of short-term liquidity assessment for stress scenarios, excluding receivables due to heightened collectability risk.[1][2][3]
See also
References
- ↑ Костова, Надя (2019) (in bg). Финансов анализ. Варна: „Бизнес практика Актив“. pp. 203–204. ISBN 978-954-9587-51-7. "„…в кризисна среда… коефициентът за кризисна ликвидност… се изчислява по формулата: (Текущи активи − Краткосрочни вземания)/(Текущи задължения).“"
- ↑ Ivanova, Rositza (2021). "Reflections on the Indicators for the Analysis of the Entity’s Liquidity" (in bg). KNOWLEDGE – International Journal 44 (1): 62. https://journals.indexcopernicus.com/api/file/viewByFileId/1656063. "„Петров (2014, с.148) предлага ‘коефициент на кризисна ликвидност’… (Текущи активи − Краткосрочни вземания)/(Текущи задължения)… целесъобразен в криза.“".
- ↑ Касърова, Виолета; Йорданов, Иво (9–10 September 2013). "Един подход за диагностика на финансовото здраве на нефинансови предприятия" (in bg). София: Нов български университет. pp. 14. https://eprints.nbu.bg/2301/1/Doklad_VKasarova_2013.pdf. "„…включен, като аналитичен инструмент, коефициентът за кризисна ликвидност: съотношение между текущи активи, намалени с вземанията, и текущи пасиви.“"
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