Definition of liquidity :-
It is basically company ability to convert their asset to cash in order to pay it's liabilities when they become due.
For example
Accounts receivables, inventories , temporary investments are the liquid assets.
Causes of liquidity :-
Liquidity depends upon how the cash inflows or outflows is affected .factors or causes affecting liquidity examples are as follows :-
a.Uncertainity of cash flow projections .
b.Management policies depends either management is risk averse or invest in risk free securities.
c.obsolete inventory , Bad debts etc.
Measurement of liquidity :-
There are various liquidity ratios for measurement of company liquidity .for example :-
a.Current ratios :-
= Current Assets / Current liabilities .
b.Quick ratios :-
(Cash and cash equivalent + current receivable + short term investment )/current liabilities .
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