LIQUIDITY RATIOS

Among the 100 Key Performance Indicators there are those who are useful for any companys' ability valuation to satisfy maturing short-term debt. The liquidity ratios. 

To that extend the Liquidity ratios are the most important ratios that the company's management shall monitor to tracking the financial risk but also to monitoring the accounted results with forecasted budgets. Especially during periods of adversity like it happens nowadays with the Pandemic situation, it is crucial to carrying out the business using risk management key performance indicators.

In fact, poor liquidity, it may increase a company's cost of financing and can render it unable to pay bills and dividends to investors and shareholders so that alerting in advance the management.    

Liquidity ratios that are used by the global community of creditors for valuation company's creditworthiness and rating are mainly the Current ratio (current ratio) and the Quick ratio (quick ratio) however these ratios are "static" ratios and not "dynamic" ratios. In addition there is another important ratio who is native in its terminology and is called cash ratio.   

Other important ratio that can add value in the process of financial risk analysis and reporting of financial information to the global community of creditors and investors about a company creditworthiness are also the Customer credit days , Vendors credit days and Inventory days. These can provide additional information over the cycle of the liquidity turnover.

The leatest shall be in fact included for a compelling financial due diligence that consider not only the "static" analysis but a "dynamic" analysis since the average of payments due and the average of collection due are suitable to measuring the overall turnover of liquidity. 

Learn more about companys' liquidity ratio: