Evaluation Of The Current Liquidity Management Essay

Liquidity Risk: The liquidity risk of Telstra can be analysed from the help of these two ratios

Liquidity ratio. The firm’s liquidity shows a downward trend through time. The current ratio is decreasing because the growth in current liabilities outpaces the growth of current assets. The quick ratio is also declining but not as fast as the current ratio. From 1991 to 1992, it only decreased 0.35 units while the current ratio decreased 0.93 units. Looking at the common size balance sheet, we also see that the percentage of inventory is growing from 33% to 48% indicating Mark X could not convert its inventory to cash.

Liquidity ratios shows the ability of a company to pay off short term obligated debts and fulfill the requirements of cash for unexpected events [1]. The comparison of the liquidity ratios of several individual companies is meaningful, only if those companies are in a same industry and legal system. In the rest of this part, we are going to discuss more details about working capital and current ratio which are 2 key indicators for displaying the liquidity of companies

The liquidity position of a company can be evaluated using several ratios which evaluate short-term assets and liabilities and a firm’s ability to settle short-term debts (Gibson, 2011). These ratios can provide insight into a firm’s ability to repay its debts in the short term (Gibson, 2011). In turn they suggest a firm’s capacity for debt-satisfying capabilities into the future (Gibson, 2011). This paper will use financial statement data as cited in Gibson (2011) from 3M Company (3M) to better understand liquidity measures to evaluate a firm’s total liquidity position. The following paper will focus on various liquidity calculations, their meaning, and their interpretation relative to 3M. Finally, an overall view of 3M’s liquidity

The bank manages its non-deposit liabilities on the options open for investors are the public’s demand for deposits supplies of raw material intended for lending, investing and profits these institutions earn such as standby credit letters and credit guarantees are sold to acquire customer fees and loans remain securitized or vended to entice new funds appropriate towards generating innovative finances. The bank main uses of customers’ funds are utilized for cash to satisfy reserve requirements enforced

What is meant by liquidity? Did the company experience an increase or a decrease in liquidity over the two-year period evaluated? What effects do the liquidity figures have on the company’s long term and/or short term performance?

regulation of financial markets and bank liquidity. In the next few years, national and international

Liquidity refers to the availability of cash in the near future after taking account of immediate financial commitments (also known as current liabilities). Cash in the near future will be available from bank deposits, cash released by sale of stocks and cash collected from customers. Immediate financial commitments are shown in current liabilities. The first ratio of liquidity is the current ratio, which is a simple comparison of current assets with current liabilities.

This indicates the banks capacity to maintain capital commensurate with the nature and extent of all types of risks, as also the ability of the bank’s managers to identify, measure, monitor and control these risks. It reflects the overall financial condition of the banks and also the ability of management to meet the requirement for additional capital. This ratio acts as an indicator of bank leverage. Capital base of financial institutions facilitates depositors in forming their risk perception about the organization since Capital Adequacy is very useful for a bank to conserve and protect stakeholder’s confidence and prevent the bank from bankruptcy. Capital is seen as a cushion to protect depositors and promote the stability and efficiency of financial system around the world. It also specifies whether the bank has adequate capital to grip unanticipated losses. It also acts as a boundary for financial managers to maintain adequate levels of

Rapid financial development did not just made the world better but also increase the possibility of encountering numerous crises like bank crisis. Bank crisis or bank risk had been a global financial crisis as banks had a great impact on a country’s economy as primarily control the stability of currency and the creation of money. It may be primarily caused by credit, market and operation risk or by even failure in bank’s internal operation like human frauds or errors. This crisis may show its symptoms in its early age like indebtedness or insolvency of the banks. Treatment and prevention of this problem is in the hands of high managements of banks and through the traits of the manager in handling this kind of problems.

“The new Basel III framework establishes higher liquidity requirements to ensure banks are better-equipped to absorb losses like those relating to the global financial crisis”. (Delimatsis & Panagiotis, 2012) Basel III promotes LCR (liquidity coverage ratio), ratio of high quality liquid assets(HQLA) to total net liquidity outflows over 30 days. Theoretically, banks whose LCR is more than 100 percent possess sufficient liquidity to withstand a month of elevated financial stress. (House, Sablik, & Walter, 2016)

Due to the characteristics of banking industry, there is a high flexibility for management in these two liabilities. It is noticeable that deposits and borrowing accounted for about 97% of total liabilities on the balance sheet. Occupying 69% of total deposits, managers pay more attention to Retail Banking Services because of itsattractiveness to customers compared to other types of deposits.

In practical terms a bank needs to remain liquid, otherwise it can have a huge consequence and a systemic failure may arise on the institution itself and could have a negative

Assets come in many forms, differentiating in their liquidity. Liquidity, by definition, is how easy an asset can be traded (Hertrich, 2015). Different assets have different abilities to be traded, cash being the easiest; hence cash is the most liquid asset. This causes price differentiation, where more liquid assets have higher price tags and lower trading costs (Hertrich, 2015). This makes more liquid assets more attractive for investors. When assets have low liquidity there are risks involved for investors because there is a chance that the asset cannot be turned into cash when needed. Liquidity risk calculates the difficulty of selling an asset in return for cash (Currie, 2011). Liquidity risk is associated with low liquidity; hence there is a negative relationship between liquidity and liquidity risk (Hertrich, 2015). This implies that the higher the liquidity risk of the asset, the less the possibility the asset can be traded.

In order to meet its liquidity needs to survive a significantly severe liquidity stress scenario lasting for a month, Liquidity Coverage Ratio (LCR)’s requirement aims to ensure that banking institutions have sufficient High-Quality Liquid Assets (HQLA) that can be readily converted into cash (Lange, Saunders & Cornett, 2015). The LCR is a ratio and firms would be required to keep HQLA equal to at least 100 percent of total net cash outflows over the next 30 calendar days.