Liquidity Indicator Concept

Liquidity indicators, associated with accountancy liquidity concept, are ratios that seek to measure the company’s capacity in paying its short term debts in time. In this sense, liquidity indicators compare the value of certain groups of assets with certain liquidity levels with liabilities of lower chargeability deadlines. So, the liquidity level of a company depends not only of its investment politic, but also of its funding politic: for example, if the company finances itself preferably with equity or with long term debt, its liquidity has a tendency to increase.

Depending on the considered assets liquidity level, the indicators can be classified in different types, namely:

. General Liquidity – are considered all current assets;

. Reduced Liquidity – are not considered current assets of lower liquidity, namely stocks/inventory;

. Immediate Liquidity – are considered only the immediate liquidity assets, this is the availabilities (cash and deposits).

 

Translated from Portuguese by Susana Saraiva, Portuguese-English and English-Portuguese translation specialist. Contact: spams@sapo.pt.