Coefficients of liquidity and solvency

Before turning to the consideration of the term "liquidity ratios", it is necessary to understand what is meant by the concept of liquidity. The concept of liquidity refers to economic terminology. It means the ability of assets to quickly convert into cash. In other words - liquidity - convertibility in money. Liquidity and solvency ratios are of particular importance for determining the financial stability of any organization, including a commercial bank.

It is worth noting that in the term "liquidity" and the term "liquidity ratio", despite the consonance, have a different meaning. Liquidity refers to the ability to convert into money or their equivalent to repay financial liabilities. Special importance is attached to the speed of such a transformation.

Since liquidity determines the stability of the enterprise as a whole, this indicator is primarily of interest to investors, business owners, managers, etc.

The term "low liquidity" can speak not only about the time of transformation of an asset, but also about the level of losses that are associated with such a transformation. For example, a specific item of fixed assets with a nominal value of 1 million within a month can only be converted into 700,000 in real money terms.

Liquidity ratios are indicators that are used to assess the ability of an organization to repay existing liabilities with the help of assets available to the company.

Based on the fact that the assets are characterized by a different degree of liquidity, then the liabilities are characterized by different terms of the company's performance of obligations. Therefore, the liquidity ratios make it possible to estimate the ratio of equal maturities of liabilities to the realization of liabilities and assets in numerical terms.

Consider the liquidity ratios used in enterprises.

Coefficient of current liquidity , in other words, coverage ratio. It is a financial ratio expressed by the ratio of current assets to current liabilities (short-term liabilities). It reflects the ability of the organization to settle on its debt obligations during the duration of the production cycle. The quick liquidity ratio is a financial ratio equal to the ratio of highly liquid current assets to current liabilities. It reflects the ability of the organization to settle on its debt obligations during the duration of the production cycle when difficulties arise with the sale of finished goods or goods.

The absolute liquidity ratio is a financial ratio equal to the ratio of short-term financial investments and cash to current liabilities.

It is worth noting that the following key ratios of the bank's liquidity are expected for banks: instant liquidity, liquidity under fixed liabilities and the general liquidity ratio for term liabilities.

For the largest banks, the allowable and critical liquidity ratios of the bank are difficult to establish, since the processes reflecting liquidity in them differ slightly from the generally accepted model. Thus, for such banks, the coefficients are more of a reference nature.

In general, the liquidity and solvency ratios of any enterprise reflect the nominal value of the enterprise's potential to cover current debts with available current assets. The determination of such coefficients is connected with the account of means and accounting operations.