Liquidity

Liquidity is a term describing how easily and quickly a company can convert its assets into cash in order to meet short-term obligations. It is the ability to pay bills, debt and other obligations without disrupting the business's day-to-day operations.

How it is measured

You can measure your liquidity with several key figures, of which the best known methods are:

• Likviditetsgrad 1, the current ratio
• Likviditetsgrad 2, the quick ratio
• Likviditetsgrad 3, the cash ratio

What is it used for?

Liquidity measures are decisive for assessing a company's ability to meet short-term obligations and handle unforeseen expenditure. They help the company, creditors, investors and stakeholders assess the company's financial health and risk profile. Good liquidity gives financial flexibility and security in maintaining continuous operations.

Tips for managing liquidity

• Monitor the liquidity ratios regularly in order to get early insight into any liquidity challenges.
• Optimise inventory management in order to reduce tied-up capital and release cash.
• Improve the collection of trade receivables in order to accelerate cash flow.
• Have a careful plan for raising capital and for financial management, in order to meet short-term obligations and secure continuous operations.

With good liquidity and effective cash management, a company can be better equipped to meet its financial obligations and take up opportunities for growth and investment.

Read more about how Capassa gives you up-to-date forecasts and alerts about your liquidity.