EXPLAIN WHAT IS

LIQUIDITY
CONCEPT
 
Liquidity is the ability of a company to meet its obligations to pay its short-term debts, namely business
debt, dividend debt, tax debt, and others. Liquidity is also the ability of a person or company to pay off
debts that must be paid immediately using their current assets. In general, a company's liquidity level is
shown in certain numbers, such as fast ratio numbers, current ratio numbers, and cash ratio figures.
 FUNCTION AND
BENEFITS OF
LIQUIDITY
1. As a media in carrying out the company's daily business activities.
2. As a tool to anticipate urgent or sudden funding needs.
3. To facilitate customers (for banks or financial institutions that want to make loans or withdraw funds.
4. As a reference level of flexibility of a company in getting investment approval or other profitable business.
5. As a tool to trigger companies in efforts to improve performance.
6. As a tool to measure the level of the company's ability to pay short-term obligations.
7. Can assist management in checking the efficiency of working capital.
 COMPONENT
LIQUIDITY
The following is an explanation related to the liquidity component:
 
Density, which is the gap or distance between the normal price of an item and the agreed price.
Depth, i.e. the amount or volume of goods sold and purchased at a certain price level.
Resilience, which is the rate of speed of price changes in the direction of efficient prices after price
deviations or instability.
 TYPE OF RATIO
LIQUIDITY
Liquidity ratio is a ratio that shows a company's ability to meet obligations or pay short-term debt. This ratio
can be used to measure how liquid a company is. If the company is able to meet its obligations, it means the
company is liquid, whereas if the company is unable to fulfill its obligations, the company is liquid.
1. Current Ratio
Current ratio is the level of a company's ability to use current assets to pay all current liabilities or debts. In this ratio will be known
to what extent the company's current assets can be used to cover short-term liabilities or current debt.
The greater the ratio of current assets to current debt, the higher the company's ability to cover its current debt obligations. The high
ratio of smallpox can indicate the existence of excess cash, which can mean two things, namely the amount of profit that has been
obtained, or the ineffective use of company finances to invest.
 
2. Fast ratio
Quick ratio is the level of a company's ability to pay short-term debt using current assets, regardless of inventory, because inventory
requires a longer process to cash than other assets. This ratio will show the ability of companies to pay short-term liabilities using
current assets or without calculating inventory, because inventory will require a long time to cash compared to other assets.This fast
ratio consists of receivables and marketable securities. So the greater the ratio, the better the company's financial position. If the
results reach 1: 1 or 100%, then this will have a good effect if there is a liquidation because the company will be easy to pay its
obligations.
 
3. Cash Ratio
Cash ratio is the level of a company's ability to pay off short-term debt using cash funds, such as checking accounts. This ratio is used
to measure the amount of cash available to pay off short-term obligations as indicated by the availability of cash funds or cash
equivalents, for example checking accounts. If the ratio shows 1: 1 or 100% or the greater the ratio of cash to debt, the better.
 4. Cash Turnover Ratio
The ratio of cash turnover is the ratio that shows the relative value between the value of net sales to net work. In this case, net
working capital is all components of current assets minus total current debt. This ratio will show the relative value between the value
of net sales and net work. Net working capital is all components of current assets minus total current debt. This ratio is calculated by
dividing net sales value by working capital. This ratio shows how much sales for working capital the company has.