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Liquidity Metrics and KPIs

Solop gives you the best Liquidity indicators so you can evaluate the performance of your company with simplicity.

What are they and what are they for?

Liquidity KPIs (Key Performance Indicators) in a company are measures used to evaluate the organization’s ability to meet its short-term financial obligations. These indicators are essential to understand your financial health and strength in terms of your ability to cover your debts and immediate expenses.

Let’s see what are the main KPIs that you can use in your business:

Immediate liquidity ratio

 

Quick Ratio

Current Ratio

 

Immediate Liquidity Ratio

Formula:

Immediate Liquidity Ratio  =Current Assets / Current Liabilities

This ratio shows the company’s ability to cover its short-term obligations with its current assets. A value greater than 1 indicates an adequate capacity to cover short-term debts.

Quick Ratio:

 Formula:

Quick Ratio = (Current Assets – Inventory) / Current Liabilities

This indicator is similar to the liquidity ratio, but excludes inventory. It provides a stricter measure of a company’s ability to meet its short-term obligations.

Current Ratio:

Formula:

Cash Ratio =  Cash and Cash Equivalents / Current Liabilities

Measures a company’s ability to meet its short-term obligations using only cash and cash equivalents.

eBOOK

We designed the definitive guide to help you select the ideal KPIs for your type of business and learn the importance of implementing dashboards in the daily management of your company.

You will be able to define indicators for any measurable activity and these indicators will help you know at any time if the performance is aligned with the defined objective.

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These KPIs are important for several reasons:

 

– Effective Financial Management: They help the company manage its financial resources effectively, ensuring that there is sufficient liquidity to meet immediate financial obligations.

– Decision Making: Liquidity KPIs are crucial tools for financial decision making, as they provide information about the short-term financial health of the company.

– Investor Attraction and Credit: Investors and creditors often evaluate these KPIs to determine the financial stability of the company before investing or granting credit.

– Prevention of Financial Problems: Constant monitoring of liquidity KPIs allows the company to identify potential financial problems before they become crises, allowing the implementation of corrective strategies.
In summary, calculating and analyzing liquidity KPIs is crucial to understanding a company’s ability to meet its short-term financial obligations, contributing to efficient financial management and informed decision making.