The basis for the long-term operation of a company is to achieve and maintain its liquidity. It refers to the company's ability to settle the financial obligations arising in connection with its operation. How to determine whether a company's liquidity is maintained? What should be done to achieve and maintain it? What action should be taken when liquidity becomes threatened?
In the series related to the company's liquidity, we will try to cover all the most important threads in this aspect. Welcome to the first one, which concerns the determination of liquidity.
Liquidity assessment
In order to be able to estimate whether a company is liquid, it is necessary to put together some of the most relevant information. These include:
Balance - is a list of the company's assets held (assets) and the sources of financing of the assets (liabilities). The balance sheet is generally created at the end of the financial year and the balance sheet date is set at the date of execution of the balance sheet.
Profit and loss account - A document meaning a statement of financial operations. It is carried out on a time basis and usually covers one year. The determination of the company's profit or loss is calculated on the basis of the difference between revenue and expenses.
Cash flow - or cash flow statement. This is a document in which the financial performance of a company is taken into account by calculating the difference between cash inflows and outflows.
On the basis of the statements obtained, it is possible to summarise the financial health of the company and determine whether liquidity has been achieved and the extent of any shortfalls.
Measurement of liquidity
Financial ratios are a collection of data on the performance of a company. By collating them, it is possible to compile reports and carry out analysis. However, financial ratios are not only a tool for assessing liquidity. They are also a snapshot of how the company is functioning and an opportunity to see exactly what areas need improvement.
The basic characteristics of financial ratios are measurability, comparability and interpretability. However, indicators such as:
- current ratio
- accelerated liquidity ratio
- cash ratio
- immediate liquidity ratio
Looking for new suppliers or acquisition purposes, the financial health of the entity must be assessed, the relevant data collated and interpreted in the right way. It is then worth using the services of experts, professionally performing company audits. This makes it possible not only to objectively assess the current situation in the company, but also to obtain recommendations and even a restructuring plan for areas that are not profitable or are making losses.
Polish 
English