Liquidity ratios and solvency

Before proceed to consider the term "liquidity ratios" should be understood that the term is liquidity.Liquidity refers to the concept of economic terminology.It means the ability to quickly convert assets into cash.In other words - liquidity - uptake into money.Liquidity and solvency ratios are of particular importance to determine the financial stability of any organization, including a commercial bank.

It should be noted that the term "liquidity" and the term "liquidity ratio", despite the consonance, have a different meaning.Liquidity refers to the ability to be converted into cash or cash equivalents for the repayment of financial liabilities.Particular importance is given to the speed of the transformation.

Since liquidity determines the stability of the enterprise as a whole, the figure in the first place the interests of investors, business owners, executives, etc.

term "low liquidity" may indicate not only the time of conversion of the asset, but also on the level of losses that are associated with such a conversion.For example, a particular object of fixed assets with a nominal value of 1 million. During the month can be converted only 700,000 in real cash.

Liquidity ratios are indicators that are used in assessing the organization's ability to repay existing liabilities with the help of the available assets of the company.

Based on the fact that the assets are characterized by varying degrees of liquidity and liabilities that have different deadlines now liabilities.Therefore, liquidity ratios allow an assessment in relation numerically identical terms of obligations to the realization of assets and liabilities.

consider the liquidity ratios used in the workplace.

Current Ratio , other words, the coverage ratio.It is a financial ratio, expressed by the ratio of current assets to current liabilities (current liabilities).It reflects the organization's ability to settle its debt obligations during the duration of the production cycle.The quick ratio is a financial ratio, equal to the ratio of highly liquid current assets to current liabilities.It reflects the organization's ability to settle its debt obligations during the duration of the production cycle in the event of difficulties with the sale of finished products or goods.

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

worth noting that the banks expect the following key liquidity ratios Bank: instant liquidity, the liquidity of fixed-term obligations and general liquidity ratio of term liabilities.

For most large banks allowable and critical liquidity ratio of the bank is difficult to determine, because the processes that reflect the liquidity they are somewhat different from the standard model.Thus, for such banks ratios are greater for reference.

In general, liquidity ratios and solvency of any enterprise reflect the nominal value of the capacity of the company to cover the current debt available current assets.Determination of coefficients associated with the account funds, and accounting operations.