Definition
Liquidity ratios can be used to assess whether a company can meet its short-term payment obligations on time. For this purpose, certain asset items are set in relation to certain capital items.
As a rule, a distinction is made between three degrees of liquidity, which measure static, point-in-time liquidity and provide information as ratios on whether the company is liquid or whether payment difficulties are to be expected.
- First-degree liquidity (cash liquidity, cash ratio),
- 2nd-degree liquidity (collection-related liquidity, quick ratio) and
- 3rd degree liquidity (turnover-related liquidity, current ratio).
However, the informative value of the liquidity ratios is limited, as they only show the cover ratios on the balance sheet date, but not those at other decision points. They only indicate an average coverage ratio, but say nothing about the exact maturity of short-term receivables and liabilities. As a remedy, the dynamic liquidity ratio was introduced, which puts the cash flows in relation to the short-term liabilities:
Dynamic liquidity ratio = (cash flow / current liabilities) * 100
Bettina Dirks
