Monday 6 February 2017

Liquidity - Definition, liquidity Ratio


A liquidity is a company's ability to convert its assets to cash in order to pay its liabilities when they are due. It can measures the ability of an individual or company to meet their short-term financial obligations.

As already expressed above, that by connecting each element of various assets and liabilities in the balance sheet at a specific moment, it will be obtained regarding the State financial picture at a company. In the balance sheet describes the value of the assets, debts and capital at a given moment, whereas the profit loss report describing results achieved by an enterprise during a certain period. through the financial statement can be known to the State of liquidity and profitability of a company.

Liquidity - Definition

The issue of liquidity of a company closely associated with the issue of the ability of a company to meet its financial obligations that must be met. In order to meet the obligation, then the company should have the tools in the form of liquid current assets number must be greater than the amount of obligations that must be filled immediately in the form of debt-debt smoothly in no time.

The greater the amount of current assets that are owned by a company as compared to debt smoothly, then the greater the degree of liquidity of the company. And vice versa if the amount of current assets is less than the debt, means that the company is how in the liquid. 

About Liquidity Ratio

The Liquidity ratio is the ratio suggests that measures the level of the company's ability to meet the obligations of the term short. In other words,  the liquidity ratio-ratio is a ratio that measures the level of the company's ability to meet obligations when due.

An enterprise may be said to be a good level of liquidity when liquidity is above the standard 1:1. With good liquidity level determine is an act of caution from the company in anticipation of a State.

Thus it can be said that at the level of the liquidity of a company holds an important role and can be a major concern when the company held a financial analysis for the levels of liquidity of a company is one of the factors another that determines whether or not a company successfully maintained because accuse provision of funds and cash and resources to meet those needs, as well as presents to determine how far the company will bear the risk, which the factors/risks of the long-term funding concerns and concerns the relationship between the Fund's shareholders.

As for the relationship between the Fund and the Fund shareholders long-term loan typically above, such restrictions were with him then it will be retained in standard applicable rate for income property as security and backup those funds.

Level of liquidity

If the level of liquidity must be maintained at a standard that is normal, then the wrong main task manager is to assess their work plan taking into account the need to guarantee cash in order to meet the obligations which These obligations come from outside the company commonly referred to as the liquidity of a business entity, while the obligations that come from within a company is a to improve the course of operations such as employee salaries, the purchase of raw materials that's where this obligation is usually called by the company's liquidity or liquidity of the intern.

Level of liquidity of a business entity may sense that the company has to keep financial promises of accuracy on outside parties for without the company then the company's survival will be threatened, whereas internal liquidity concerns people who at any time could hinder the operations of the company's operations.

A firm is said to have a good level of liquidity in the company has a reasonable level of liquidity. High liquidity rate showed that the company has an amount of funding that many unemployed and when is too low so the company's safety is threatened.

Liquidity Ratio

As for some of the liquidity ratio, which can be used to measure and know the level of liquidity that is:
  1. Current ratio
  2. Quick ratio
  3. Cash ratio

But in this case the author is just using the current ratio, so therefore in addition to the public used by the company, is also the ratio of current equipment that measures on liquidity rate was roughly comparable to that of the other. For more details then below will be explained about the liquidity ratio as measured by current ratio.

Current ratio is a measure that is very valuable in assessing the capabilities of the company in the fulfilling his smooth debt-debt are immediately due. But a company with current high ratio is not necessarily guarantee will be able to pay the debts of the company which is due because of the proportions and the unfavorable current assets such as a relatively high number of inventory compared with estimates on the level of sales to come, so that the inventory turnover rate low and showed a great receivables balance difficult to collectable.

Current ratio is too high which suggests an excess of cash money or current assets compared with the required now. But there was a problem until it is at the level where the ratio will be maintained in order to meet its obligations immediately. The size of current ratio is right for the company could not be determined with certainty, the current 2:1 ratio guidelines his true based only on the principle of caution.

So liquidity should be maintained is 200%. But these guidelines are not mandatory and guidelines is simply a prudent action for companies, for when a company sets a current ratio of 2:1 or 200%, this means that each rupiah debt smoothly, can be secured by two the rupiah's current assets.

The existence of the current ratio of 200% gives a hint to Manager the company about how much credit the can be borrowed to meet short term needs that do not interfere with the level of liquidity:

As for the formula used to calculate the current ratio is as follows:

Current Assets
Current Ratio =-------------------x 100%
Debt smoothly
This ratio is an indicator of current liquidity is used abundantly, because it can provide information about the capabilities of current assets to cover the debt.

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