The Basic Sources Of Income Of A Bank

Liquidity ratios measure the capability of a business to cover expenses and meet its current and long-term responsibility. These ratios are imperative in order to keep the business alive. Lending institutions are typically unwilling to loan money to a business that finds itself in a cash flow jam, because that is often a sign of poor management. The liquidity is measured with 3 different ratios; current ratio, turnover – of – cash ratio and debt- to equity ratio.

The liquidity of firm can be measured by computing certain ratio’s such as current ratio and acid ratio. For measuring Target Corporation’s 2014 liquidity; the firm’s current ratio and the acid ratio is computed. The company’s current ratio is 0.91 times which is computed by comparing current asset ($11, 573,000) with current liabilities ($12,777, 000) of the year 2014 (TGT Company Financial, n.d). The firm’s acid ratio is 0.26 times which is computed by deducting inventory ($8,278,000) from current assets. The inventory is deducted from current assets because the company has not received any money for the unfinished good or from unsold inventory worth ($8,278,000). To analyze the Target Corporation’s liquidity trend in 2014; the current ratio and acid ratio of 2014 is compared with the 2015’s ratios. In 2015, the firm’s current ratio was 1.20 times and the acid ratio was 0.45 times. These liquidity ratios reflect that the firm’s liquidity was better in 2015 than 2014. (See Table 1).

Liquidity is important for any firm as it is an assessment of the ability to pay its' liabilities in the short term. There are two main liquidity ratios: the current and the quick ratio. The current ratios divides the current assets by the current liabilities to assess how many times the current assets can pay the current liabilities (Elliott and Elliott, 2011). Traditional ratios are usually in the region of 1.5, but this may vary depending on the industry and nature of the business (Elliott and Elliott, 2011). The current ratio is shown in table 1.

Example: If a company needed to pay off a debt quickly before an ending year they could cash in their liquid assets and to do so.

The liquidity ratios indicate a firm's ability to carry out enough revenue in order to cover its obligations and continue its operations.

37. A company is said to be liquid if it has sufficient cash to pay currently maturing debts.

The current assets are those which are readily convertible into cash and cash equivalents due to their highly liquid nature and also form part of working capital of the company’s operations. However, the long term assets in contrast are not liquid because since they have a useful life of more than a year and hence their full value cannot be easily realized within

Liquidity represents a company’s ability to pay its short-term obligations. In the following schedule is the calculation of the ratios that are indicators of the liquidity position of a company.

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 measure the short term ability of a company to pay its obligations and meet their needs for maintaining cash. According to Cagle, Campbell & Jones (2013), “A good assessment of a company’s liquidity is important because a decline in liquidity leads to a greater risk of bankruptcy” (p. 44). Creditors, investors and analysts alike are all interested in a company’s liquidity. After computing liquidity

Liquidity ratios measure the ability of a firm to meet its short-term obligations. A company that is not able

Liquidity is an important factor in financial statement analysis since an entity that can not meet its short term obligations may be forced into liquidation. The focus of this aspect of analysis is on working capital, or some computer of working capital.

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

In comparing the companies to each other it is important to take into account the liquidity or ability of a firm to meet its current obligations, and solvency

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.