Tuesday, 14 March 2017

Liquidity ratio - Types Liquidity ratio & Formula

Liquidity ratio

Introduction to Liquidity

Liquidity is closely related to the company's ability to meet its state should be filled or in other words the short-term obligations of the company must be repaid immediately, then by linking elements from on assets at one party with liabilities on the other hand on the financial statements of the company will be obtained an overview of the State of financial companies.

The 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 fulfilled in the form of debt-debt smoothly.

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 is in a position of liquid. And vice versa if the amount of current assets is less than the debt, means that the company is in liquid.

A liquidity ratio is the ratio suggests that measures the level of the company's ability to meet short-term obligations.

The liquidity ratio is the ratio that measures the level of the company's ability to meet obligations when due.

A company is said to have a good level of liquidity bags in liquidity levels are above standard. By determining the levels of liquidity is good is an act of caution from the company in anticipation of a State.

Thus it can be said that the level of liquidity bags an enterprise play 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 right one for determine whether or not a company successfully maintained because the accuse provision of the Fund and  of 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 loans are usually in the form of restrictions on the loan that exceeds the limits, the restrictions were with him then it will be retained in standard rate applicable to income and the reserve of property as a guarantee of these funds.

Level of liquidity of a business entity has the meaning that the company must maintain the accuracy of the financial promises on outside parties without help from the outside, then the company's survival will be threatened, whereas internal liquidity concerns people 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 companies have funds smoothly are higher than on a high debt smoothly pointed out that the company has a number of funds that many unemployed and when too low safety company will be threatened.

Types of Liquidity Ratios

To assess the short-term financial position here given some kind of liquidity ratios that can be used as a tool to analyze the data include:

A. Current ratio

This ratio is a measure that is very useful to measure and assess ability or company's strengths in meeting or pay debt-debt that paid smooth. The calculation of this ratio is to compare between current assets with the following formulation:

Current Assets

Current Ratio = x 100%

Debt smoothly

Although there has been no provision in force in Indonesia about the measurement of a standard ratio, but through literature can be used as a guideline. Current ratio is high indeed good and from the point of view of the lender but the point of view of shareholders less give up because current assets not harnessed effective but are otherwise relatively low current ratio is more troubling but it indicates that management has operated an effective current assets. Current ratio is also an indicator of the level of liquidity that is used in more powerful because it can provide information about the capabilities of current assets to cover all debt-short-term debt.

B. Cash Ratio

Cash ratio is the ability to pay debt that is soon to be met with the available cash in the company and the effects immediately poured, where it has been known that cash is the most facile elements of wealth both high liquidity because the more money the cash available in the company the better short-term needs because it can also be useful to keep on pressing needs.
To calculate the cash ratio can use formula, as follows:

Cash + Effects

Cash Ratio = x 100%

Debt smoothly

2.  Acid Test Ratio

This ratio is a measure of the ability of the company to meet all its obligations by issuing short-term component inventory because it is considered that the preparation of a relatively long to realize inventory can be sold or not. This inventory is a component of current assets that are considered the lowest liquidity as well as experiencing price fluctuations. This ratio can be calculated by comparing current assets reduced by the be happy component supplies with debt smoothly with the formulation, as follows:

Current Assets – Inventory

Acid Test Ratio = x 100%

Debt smoothly

So the acid test ratio is liquidity after reduced age supplies in it or by comparing the amount of cash and accounts receivable plus the effect on one party by another party smoothly on debt.

This ratio is more emphatic than on the current ratio because it only compares a very liquid assets with debt smoothly, while the inventory is current assets are the lowest level of liquidity is issued if the current low the ratio shows that there is a very large investment in inventory.

D. Working capital Ratio

The working capital is current assets are embraced by the company to perform everyday activities and who are always turning.

Current assets that can actually be used to finance the company's operations without affecting liquidity, that is the excess of current assets over debt, working capital is often called net working capital or a difference of prices substandard and debt smoothly. Working capital can also be used as a basis for measuring the level of liquidity, because modal work is also most possessions smoothly invested to finance the company's operations without disturbing the liquidity expected to date working capital revolves back into cash.

The working capital ratio can be used to find out the total liquidity of assets and working capital position to know net of the overall assets with the formula:

Current Assets – Ht Smoothly

Working capital to total assets ratio = x 100%

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