The most liquid assets of an enterprise

The financial status of each company is assessed by indicators of solvency and liquidity. They tell professional economists whether in the short term the company will be able to pay off all its liabilities and debts.

Liquidity of assets is the ability of an organization to repay debt quickly at the expense of borrowed funds and its own. This indicator is a kind of guarantee of financial stability. It is expressed in the degree of security or, on the contrary, the lack of security of assets by long-term sources. The most striking feature of the liquidity of an enterprise is the excess of the value of assets over liabilities in the short term. The more this difference, the more stable the financial position of the firm.

The most liquid assets are characterized by a high rate of conversion into cash. In economics, they are designated as A1. These include short-term investments, cash funds of the organization and money in the accounts.

The next group is A2. It includes accounts receivable.

A3 - slowly realized. In the balance sheet they are reflected as "Long-term investments", as well as "Current assets".

A4 - are implemented quite difficult. These include "Non-current assets".

Liabilities are also divided into four types, depending on the urgency of the return.

P1 - the most short-term liabilities. They include accounts payable and short-term liabilities.

The group P2 includes "Borrowed funds" and part of the article "Short-term liabilities".

Longer return period for P3. These liabilities include long-term loans, as well as other borrowed funds.

In the balance sheet there is an article "Capital and Reserves". She is included in the group "Permanent Liabilities" - P4.

Analysis of liquidity and solvency includes a comparison of assets and liabilities. If the enterprise has a stable financial position, it is more in line with the following conditions: А4≤П4; A3≥П3; A2≥P2; A1≥1. In the case where the most liquid assets are significantly higher than P1 liabilities, the company can shortly pay off short-term liabilities. When the conditions A3≥P3 are satisfied; A2≥P2, the organization has good financial stability. Inequality А4≤П4 indicates that the enterprise has large own circulating assets. If all these conditions have the opposite meaning, then the liquidity of the balance is very different from the absolute one.

It is possible that some types of assets compensate for the lack of others with their excess, but it is necessary to take into account that the time of their transformation into money may take a longer period. For example, the most liquid assets can not be replaced by others, since they are the fastest way to pay off obligations with counterparties.

During the analysis of the company's condition, a number of other indicators are being calculated. The main are the following:

1) Current liquidity ratio. Calculated as a private current assets and short-term liabilities.

2) The liquidity ratio is absolute. This is the ratio of cash to current liabilities.

3) The liquidity ratio is urgent. These are the most liquid assets divided by short-term liabilities.

The degree of financial stability, that is, the solvency and liquidity of the firm, it is useful to know practically all counterparties. For example, a bank will not give out an organization to a loan until it has completely studied the balance sheet and some other accounting documents. If the financial worker is convinced that the given organization is in a position to not only fully repay the loan taken, but also pay all the interest on it, it will receive the required amount of money.

In addition, the economist or the manager of the enterprise should monitor the change in solvency and liquidity, and report the results to management.