Liquidity Measures
Liquidity is a means of understanding a company’s susceptibility to either current of future financial distress. It also helps build a risk profile of the business. But remember though that a single “safe” liquidity measure does not exist across all industries. Some industries traditionally and successfully trade at low liquidity levels, whereas for others, the same figure is a sign of distress.
Liquidity Ratio
How do you get your Liquidity Ratio? The Liquidity Ratio gives a relative measure of current liabilities compared to current assets. Strive for a figure greater than 1.5. This means that your accessible assets can easily offset your immediate liabilities.
What does it mean?
The ratio indicates how immediately liquid your business is. For instance, if all of your creditors demanded payment at the same time, how much could realistically be raised immediately to pay them? Would this cover your liabilities? Check your liquidity with Jazoodle now.
How we derive your liquidity ratio?
Definition used:
Your company’s liquidity is calculated by comparing your total current assets to total current liabilities. A current asset or liability is one that is expected to become due within the next 12 months.
How Can I Improve My Liquidity Ratio?
Your ratio can be improved by a number of measures or changes, including:
- Increasing cash balances.
- Increase sales revenues
- Reduce short term debt
- Pay off credit cards
- Implement a strong creditor and debtor payment policy
Video: Liquidity Ratios
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