Cash liquidity. Liquidity, what is it in simple words

The term liquidity refers to an economic topic. It denotes the ability of an asset to be quickly sold (at a price as close as possible to the market price). There is another meaning - liquid, which means easily convertible into money. When analyzing the activities of enterprises, the concepts of current and absolute liquidity ratio are mentioned. Based on these indicators, you can quickly understand the company's ability to pay off material obligations.

Liquidity – what is it in simple words

The value of the parameter is usually calculated for all types of assets and types of organizations. Banks, factories, and trading companies are valued differently, based on the predominance of certain assets they have and the degree of their value in the market at the current moment. The liquidity indicator may indicate the degree of creditworthiness of the company, the margin of safety in case of crisis in the market.

The liquidity of an asset is the level of its demand by the market, and the value may change over time.

Different assets have markedly different performance. Enterprises have adopted the following sequence, starting from the most significant:

• Funds in cash and bank accounts.
• Securities (shares, bonds, bills).
• Current accounts receivable.
• Stocks of materials/goods in warehouses.
• Equipment, vehicle fleet, other technological capacities.
• Real estate, including unfinished construction.

The lower the asset is located in the list, the more difficult it is to quickly sell it at the market price. From here we can derive a summary: the liquidity of an enterprise is the sum of all assets that the enterprise has. In order to objectively assess their value, coefficients are calculated that take into account the characteristics of the current market. One of the most liquid assets is money, but few companies allow themselves to hold a large amount of funds without investing in their own development.

Why is liquidity assessment so important?

The liquidity of an enterprise is determined for various reasons. Such work can be carried out to present a report to the owners and investors of the company, to create a justification for creditworthiness when preparing documents for applying to the bank. When analyzing the financial situation of a company, assets are usually divided into separate groups. This makes it easier to guarantee an objective assessment by an expert, including the ability to compare the company with competing companies.

High liquidity protects the enterprise from crisis phenomena

The division is usually carried out according to the degree of market demand:

• Maximum liquid assets. They are understood as commitment-free finances and short-term material investments.
• Quickly selling assets. One example is accounts receivable (up to 12 calendar months of full repayment).
• Slowly selling assets. Inventories, debts to the enterprise, repayable within more than 12 months.
• Hard to sell assets. Equipment used for production and other daily business operations.

Current assets such as free money, goods, raw materials are more liquid than the organization's property. The former are often used as collateral for obtaining urgent loans. If we are talking about a banking organization, a high level of the indicator will indicate the ability to fulfill its obligations in a timely manner. In a bank, the most liquid asset is the circulating money supply.

How is asset liquidity assessed?

If the liquidity of the enterprise's balance sheet is at a high level, its solvency is beyond doubt. And it’s not just about the ability to receive direct loans. Businesses actively use the so-called bank guarantee, when a credit or insurance institution acts as a guarantor when concluding large transactions. Sometimes companies themselves check potential partners, calculating the risks of cooperation.

Calculating balance sheet liquidity is a comparison of the assets and liabilities of an enterprise

To determine current liquidity, use the following comparisons (look at the digital values ​​​​on the balance sheet):

• Maximum liquid assets >= Most urgent liabilities.
• Quickly realizable assets >= Short-term liabilities.
• Slow-moving assets >= Long-term liabilities.
• Hard to sell assets =

The larger the enterprise, the more different types of assets and liabilities it will have - raw materials can be supplied to production with deferred payment, and the company’s clients can receive goods “for sale.” Liabilities primarily refer to accounts payable to banks, suppliers, and other counterparties.

What is the liquidity of an enterprise expressed in?

When analyzing assets/liabilities, compliance with the specified ratio is considered. If it corresponds to the optimal value, the enterprise is considered completely liquid. To do this, all assets, from the most liquid to those that are slowly sold, must exceed the volumes of the corresponding liabilities, and those that are difficult to sell must be less than or equal to permanent liabilities.

Commonly accepted indicators are liquidity ratios:

• Current. Displays the sufficiency of funds at the enterprise to pay short-term obligations.
• Urgent. Allows you to take into account the heterogeneity of liquidity of working capital.
• Absolute. An indicator of the availability of funds (their liquidity is absolute).
• Net working capital. The higher it is, the greater the confidence of management and partners in the stable position of the enterprise.

Depending on the direction and scale of the company’s activities, the recommended value of the coefficients may vary. Thus, in Russia, urgent liquidity is considered the norm at a level of 0.7-0.8, whereas according to international standards it should reach one or higher. The optimal level of absolute liquidity is at the level of 0.2-0.25.

Liquidity of a banking institution

Banks, as commercial organizations, are assessed by their level of liquidity in the same way as manufacturing and trading companies. Financial institutions are faced with the task of timely fulfilling obligations to clients (both short-term and long-term). Control of bank liquidity is aimed at adjusting its value.

If this indicator is insufficient, unjustified risks arise due to the inability of the bank’s own assets to cover existing liabilities. An excessive level may signal low profitability of the bank, which they also try to avoid. When calculating, real and contingent liabilities are taken into account. The first include deposit accounts and bills of exchange. The second are bank guarantees and guarantees.

For a credit institution, the essential factors are:

• Property quality.
• Volumes of funds raised.
• Balance of assets and liabilities by liquidity period.
• Management and reputation of the bank.

The political and economic situation in the country, the development of the securities market, and the effectiveness of supervision by the Central Bank of the Russian Federation can affect current liquidity. In order to maintain the bank's liquidity at an optimal level, it is necessary to have a large amount of free funds in the accounts and in the cash desk.

Liquidity of money and securities

In relation to cash and securities, the calculation of the liquidity indicator exactly corresponds to the meaning of the word - “mobility”, “fluidity”. Money is absolutely liquid, because they do not need to be “transformed”; they have value in themselves. Various securities (bills, bonds, shares) are subject to changes in liquidity depending on the financial condition of the enterprise that is the issuer.

The following types of assets are considered the most liquid:

• Securities issued by large joint stock companies.
• Government issued securities.
• Debts of large companies.
• Precious metals.
• Urgent bills of large enterprises.

To properly assess the liquidity of any security, you will need to conduct fundamental or quantitative analysis. The subject of the first method is an assessment of the company’s stability in the market, creditworthiness, and development prospects. In the case of quantitative analysis, the rate of receipt of income from investing in securities is assessed.

How to assess the liquidity of an investment portfolio

Liquid assets are considered profitable for investment. But the fickleness of the market forces entrepreneurs to think in advance about ways to reduce risks. The simplest one is to create a whole portfolio of investment proposals. Then any unforeseen circumstances with one of the assets can be compensated for by other, more profitable ones.

The investment package allows you to average risks due to jumps in asset liquidity

The key indicators of the portfolio of investment instruments are:

• Price.
• Profitability level.
• Risk level.
• Investment term.
• Minimum investment sizes.

Each asset is assessed separately and the average value is calculated. The latter is an indicator of the effectiveness of the portfolio and its stability in the current market. At the first stage, it is important to assess the speed of return on investment, the risk of non-return and losses.

Subsequently, systematic analysis gives the result of what percentage of the income received is rational to invest in expanding the investment portfolio, and what amount of profit is considered net income and withdrawn from circulation. Both processes must proceed in parallel, taking into account changes in the state of assets separately and in an averaged version.

Liquidity of the enterprise- this is the ability to repay the company’s debts in a short time. The degree of liquidity is determined by the ratio of the volume of liquid funds at the disposal of the enterprise (balance sheet asset) to the amount of existing debts (balance sheet liability). In other words, the liquidity of an enterprise is an indicator of its financial stability.

Liquid funds include all assets that can be converted into money and used to pay off the debts of an enterprise: cash, deposits in bank accounts, various types of securities, as well as elements of working capital that can be quickly sold.

There are general (current) and urgent liquidity. The total liquidity of an enterprise is defined as the ratio of the amount of current assets and the amount of current liabilities (liabilities), determined at the beginning and end of the year. The current liquidity ratio shows the company's ability to pay off current liabilities using current assets. If the value of the coefficient is below 1, then this indicates a lack of financial stability of the enterprise. A value above 1.5 is considered normal. To calculate the coefficient, use the formula:

Current liquidity ratio = (Current assets – Long-term accounts receivable – Debt of founders for contributions to the authorized capital) / Current liabilities.

The immediate liquidity of an enterprise is determined by how quickly accounts receivable and inventories can be converted into cash. To determine the quick (quick) liquidity ratio, the formula is used:

Quick ratio = (Current assets - Inventories) / Current liabilities

Absolute liquidity is the ratio of the amount of funds available to the enterprise and short-term financial investments to current liabilities. The absolute liquidity ratio is calculated using the formula:

The absolute liquidity ratio of the enterprise = (Cash + Short-term investments) / Current liabilities.

A coefficient of at least 0.2 is considered normal.

Liquidity

Absolute liquidity

Absolute liquidity ratio(English) Cash ratio) - financial ratio equal to the ratio of cash and short-term financial investments to short-term liabilities (current liabilities). The source of data is the company’s balance sheet in the same way as for current liquidity, but only cash and cash equivalents are taken into account as assets: (line 260 + line 250) / (line 690-650 - 640).

Cal = (Cash + short-term financial investments) / Current liabilities Cal = (Cash + short-term financial investments) / (Short-term liabilities - Deferred income - Reserves for future expenses)

It is believed that the normal value of the coefficient should be at least 0.2, i.e. every day 20% of urgent obligations can potentially be paid. It shows how much of the short-term debt the company can pay off in the near future.

Market liquidity

The market is considered highly liquid, if purchase and sale transactions for goods traded on this market are regularly concluded on it in sufficient quantities and the difference in the prices of applications for purchase (demand price) and sale (offer price) is small. Each individual transaction in such a market is usually not capable of having a significant impact on the price of the product.

Liquidity of securities

The liquidity of the stock market is usually assessed by the number of transactions made (trading volume) and the size of the spread - the difference between the maximum prices of buy orders and the minimum prices of sell orders (they can be seen in the order book of the trading terminal). The more transactions and the smaller the difference, the greater the liquidity.

There are two basic principles for making transactions:

• quotation- placing your own orders for purchase or sale indicating the desired price.
• market- placing orders for instant execution at current bid or offer prices (satisfying quoted orders with the best current price)

Quotation bids are formed instant liquidity market, allowing other trading participants to buy or sell a certain amount of an asset at any time. The question will be the price at which the transaction can be carried out. The more quotation bids are placed on a traded asset, the higher its instant liquidity.

Market orders form trading liquidity market, allowing other trading participants to buy or sell a certain amount of an asset at a desired price. The question will be when the transaction will take place. The more market orders there are for an instrument, the higher its trading liquidity.

see also

Notes

Literature

• Brigham Y., Erhardt M. Analysis of financial statements // Financial management = Financial management. Theory and Practice / Transl. from English under. ed. Ph.D. E. A. Dorofeeva.. - 10th ed. - St. Petersburg. : Peter, 2007. - pp. 121-122. - 960 s. - ISBN 5-94723-537-4

Categories:

• Financial ratios
• The financial analysis
• Economic terms
• Money turnover
• Investments
• Exchanges
• Corporate governance

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Synonyms:

• Colleagues of Santa Claus
• Exchange

See what “Liquidity” is in other dictionaries:

LIQUIDITY Financial Dictionary

LIQUIDITY- (liquidity) The degree to which the assets of an organization are liquid (See: liquid assets), which allows it to pay its debts on time, as well as to take advantage of new investment opportunities. Finance. Explanatory ... ... Financial Dictionary

liquidity- 1. The ability of assets to be converted into cash. It is measured using coefficients. 2. A measure of the relationship between cash or easily marketable assets and the enterprise’s need for these funds to pay off due... ... Technical Translator's Guide

LIQUIDITY- (liquidity) 1. The property of assets that can be easily and quickly converted into money at an easily predictable price. In addition to the money itself and deposits in non-bank financial firms such as building societies, short-term securities such as... ... Economic dictionary

LIQUIDITY- LIQUIDITY, liquidity, many others. no, female (fin. trade neol.). distracted noun to liquid. Liquidity of goods. Liquidity of liabilities. Ushakov's explanatory dictionary. D.N. Ushakov. 1935 1940 ... Ushakov's Explanatory Dictionary

Liquidity- Liquidity – 1. In a general sense, the ability of assets to be sold on the market: quickly and without high costs (high L.) or slowly, at high costs (low L.). Cash has absolute liquidity. Other assets... ... Economic and mathematical dictionary

Liquidity- (liquidity) The degree to which the assets of an organization are liquid (see: liquid assets), which allows it to pay its debts on time, as well as to take advantage of new investment opportunities. Business. Intelligent ... ... Dictionary of business terms

Most citizens of our country know what liquidity is, but it is quite difficult for a person without the appropriate education to formulate an accurate definition of this economic category. This fact can be explained by the fact that the presented parameter is used in many areas of human activity and is not limited to the economics of enterprises and the stock market.

This article will help you understand all the nuances that relate to liquidity, find out where, when and for what purposes it is used, and also understand the meaning of this category for enterprises engaged in commercial activities. The information presented in the article has not only theoretical significance, it can be used in practice to determine the real capabilities of enterprises/organizations or individual entrepreneurs to transfer their assets into cash.

The article will certainly be of interest not only to theorists who study economic disciplines for scientific purposes, but also to businessmen, executives and managers of large companies, bankers, stock market entities, as well as ordinary citizens who want to improve their level of education. The information is presented simply and clearly, with minimal use of economic terms and categories, so that the average reader can understand all the issues and nuances of this topic without turning to specialized web resources for help.

Definition of liquidity

In modern economic realities, the concept of “liquidity” is applied to a wide variety of categories. For example, liquidity of assets, enterprise, investments, securities or bank. But, despite such diversity, economic disciplines, as a rule, use general definitions of liquidity that can be applied in different fields of activity. To make it easier for the reader to navigate this topic, let’s first define what liquidity is in simple words.

First of all, this is the ability of an enterprise/organization, country or individual to fully fulfill its financial obligations. On the other hand, liquidity is the ability to quickly and without loss transfer assets or material values ​​into real money. In this definition, assets include any material things that have their own value (real estate, transport, equipment, securities, jewelry, etc.).

If we conduct a more detailed analysis of each industry separately, we can say that the liquidity of banks is the ability to fulfill its financial obligations with equality of its assets and liabilities, and the liquidity of a country is the ability to pay its debts to other countries, banks and international organizations within strictly specified terms.

Some economists equate liquidity with the solvency of commercial entities, but this is not entirely correct; liquidity is a broader category, as confirmed by the above definitions.

Liquidity indicators

For a detailed analysis of the question of what enterprise liquidity is, it is necessary to consider the main indicators of this category. A company is considered liquid if it is able to quickly convert its assets into cash and timely fulfill debt obligations (loans, interest on loans, payments for goods, rent, etc.).

In order to assess the level of liquidity of an enterprise, the following financial indicators are used:

Coverage ratio (total liquidity). Allows you to determine the overall liquidity of the company's assets. Used to estimate a company's current liabilities in relation to its current assets. This coefficient must have a value of no less than 1. Depending on the sector of the economy and the specifics of the operation of the enterprise, the coverage coefficient can take values ​​of 1-2.5. It is necessary to take into account the fact that after fulfilling obligations to suppliers, creditors, etc., the company must have the resources to continue its activities. Another important factor is the state of accounts receivable. For example, many small wholesale companies engaged in the sale of food products have clients whose debts can be classified as bad, and if such receivables are processed through a bank (draw up a factoring agreement), then the company will lose 10-30% of funds. In addition to those listed, there are other factors that influence the size of assets. To calculate the total liquidity ratio, it is necessary to divide current assets by the amount of all current liabilities.

Quick (current) liquidity ratio. This parameter shows what part of the company’s obligations can be repaid using its most liquid assets - cash, money in bank accounts, accounts receivable, investments. The coefficient can be found out if production inventories are subtracted from the company’s current assets, and the resulting value is divided by the sum of all current liabilities. A coefficient of 0.6 and above is considered normal.

The absolute liquidity ratio is defined as the ratio of available cash to the firm's current liabilities. In the theory of enterprise economics, the value of this coefficient is considered normal if it is not lower than 0.2. But in practice, as a rule, it is rarely used and is calculated only at the request of the company’s counterparties or governing bodies. First of all, entrepreneurs try to invest all their free money into business; no one will unreasonably keep huge sums of money in the company’s accounts just to get a high liquidity ratio; this is stupid and irrational. The second important point is that enterprises, building their relationships with lenders, suppliers, etc., agree on the mechanism and terms of payment of loans. Therefore, all current liabilities are repaid gradually, which means that the value of the absolute activity coefficient does not have much practical value for the enterprise. But sometimes you have to calculate it (for example, at the request of bankers when issuing loans).

Readers who are interested in the question of what is the liquidity of a company’s balance sheet should carefully study the above ratios. Their values ​​allow us to draw certain conclusions about the liquidity of the company’s balance sheet, which is defined as the company’s ability to meet its debt obligations using its own assets. A detailed analysis of a firm's assets and liabilities by relevant group (for example, accounts receivable is compared with the firm's short-term loans and liabilities) also allows us to determine the liquidity of the company's balance sheet.

Another important parameter for determining the potential of an enterprise is net working capital, which is the difference between the sum of all assets and current liabilities. A negative value indicates that the firm cannot pay off all its debts. On the other hand, a large positive value of net working capital indicates an irrational use of resources, that is, the business owner is not engaged in the development of the company. Pay attention to the fact that the optimal value of the size of net working capital depends on the scope of the company’s activities, its size, resource turnover, owner policies, production nuances and other external factors affecting the business.

Liquidity analysis

Theorists of economic disciplines, depending on the speed of “transformation” of assets, material values ​​and resources into money, distinguish three types of liquidity: high, medium and low. The first group includes bank deposits, securities of well-known issuers, and currency. The listed assets can be quickly and without loss converted into real money. There is only one significant nuance. For example, if you sell shares of a serious, financially stable enterprise without even leaving your home (using the Internet), then no one will buy the securities of some factory in Magadan from you. The financial instrument is the same, but the liquidity differs tens (or maybe hundreds) of times. We see a similar situation with foreign currency.

American dollars will be taken from you at any time of the day or night, and it’s hard to even imagine what to do with Mongolian tugriks for a person who rarely leaves his hometown. Although, if desired, if we are talking about a stable currency, it can also be sold, regardless of the country of origin. Somewhere on the border between high and medium liquidity are metals, both ordinary iron or copper, and gold, platinum and silver. You can sell them very quickly, but do not forget that liquidity implies not only speed, but also the loss of money upon sale, based on the market value of the assets.

Therefore, many economists classify metals as medium and even low-profitable values. A similar situation can be observed with real estate. An expensive luxury apartment or a luxurious country house, most often, are low-liquid categories that can be sold for years, and a two-room apartment in a residential area in a big city is a very liquid offer. When assessing liquidity and assigning certain labels to tangible assets, it is necessary to take into account the current situation in the market for these goods, the economic situation in the country, possible prospects for changes in situations and other external factors.

If you analyze the assets of any enterprise/firm or institution using the above criteria, you will get the following picture:

Highly liquid assets. These are again securities, products ready for sale, as well as cars and other equipment (depending on the brand, year of manufacture and condition).

Average liquidity. This may include some equipment and tools, raw materials, consumables, and in some cases production and office premises.

Low liquidity. This category includes overdue accounts receivable, obsolete machinery and equipment, as well as other assets that depend on the company’s field of activity.

In modern conditions, many enterprises (in European countries for several decades, and in our country in recent years) carry out liquidity management.

The financial departments of companies solve the following tasks every day::

determine the procedure for paying current bills, focusing on the actual availability of funds in all bank accounts (plus the enterprise’s cash desk);

prevent cash gaps;

determine the minimum balance of financial resources in bank accounts necessary to fulfill financial obligations for tomorrow.

If the work of the financial department is properly organized at the enterprise, and it cooperates fruitfully with the accounting, sales and supply departments, then you can count on the efficient use of financial resources and the almost complete elimination of various force majeure. The owner of the company will know exactly about all movements of money and have a very accurate forecast about the financial situation of the company in a week, a month and by the end of the quarter. Based on the information presented, each reader made his own conclusions about what liquidity is and which definition is most suitable for this economic category.

Liquidity and other indicators of enterprise activity

The relationship between a company's liquidity and its solvency, in general terms, has already been discussed above. In principle, we can say that these are indicators of financial and economic activity that are directly proportional to each other. The inability of the company's management to provide the required level of liquidity of the company leads to a complete collapse in matters of solvency. But to get a complete picture and eliminate gaps in everything that has to do with the liquidity of an enterprise, it is necessary to trace the relationship of this category with other parameters of the commercial activities of business entities.

Sometimes, the question of what liquidity and profitability are (in terms of their relationship) can be heard even from experienced businessmen who subconsciously understand how they work, but they cannot explain this mechanism, which makes it difficult to communicate with subordinates who are responsible for these questions.

As a result, stalemate situations arise: the boss cannot explain what he wants to get from his subordinate, and the latter, not understanding the boss, believes that he is simply finding fault. As a rule, the whole company suffers, especially if the subordinate really does a lot for the development of the company.

Even with low liquidity of the company’s assets, it is possible to make a good profit, that is, the enterprise will be profitable. Real life example. A small company consisting of five drivers, a mechanic, an accountant/cashier and a manager (who is also the owner of the business) owns four cars that pump out sewer pits. Two cars are brand new (but it’s very difficult to sell them even at real value) and two cars that can only be sold at the cost of scrap metal.

Moreover, all the equipment was purchased on credit; if the bank demands the money back, the assets will not cover even 70% of the obligations to the financial institution. By all indicators, the company is illiquid. On the other hand, each machine brings in a net profit of 100-150 dollars per day, a total daily income of 400-600 dollars. Expenses: gasoline, salary, taxes, loan repayment and renting a small room as an office. The profitability is very high.

In a couple of years, this small company will pay off all loans and their liabilities will approach zero, which means liquidity will increase. On the other hand, a company with high liquidity but low business profitability can very quickly find itself in the category of bankrupt. Be sure to consider these factors if you decide to start your own business. If you do not have enough experience and economic education to objectively assess the prospects of your business, contact professionals who know perfectly well what the difference is between the profitability and liquidity of a company.

A detailed analysis of the question of what liquidity is, presented in this article, shows not only the relevance of this problem for any business entity, but also gives you the opportunity to think carefully again and evaluate your potential before making a final decision about organizing your own business.

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From this article you will learn:

Short-term liabilities (P2) - short-term bank loans and other loans to be repaid within 12 months after the reporting date. When determining the first and second groups of liabilities, in order to obtain reliable results, it is necessary to know the time of fulfillment of all short-term obligations. In practice, this is only possible for internal analytics. In external analysis, due to limited information, this problem becomes much more complicated and is solved, as a rule, on the basis of the previous experience of the analyst performing the analysis.

Long-term liabilities (P3) - long-term borrowed loans and other long-term liabilities - items in section IV of the balance sheet “Long-term liabilities”.

Constant liabilities (P4) - articles of section III of the balance sheet “Capital and reserves” and individual articles of section V of the balance sheet that are not included in the previous groups: “Deferred income” and “Reserves for future expenses”. To maintain the balance of assets and liabilities, the total of this group should be reduced by the amount under the items “Deferred expenses” and “Losses”.

To determine the liquidity of the balance sheet, you should compare the results for each group of assets and liabilities.

The balance is considered absolutely liquid if the following conditions are met:

A1 >> P1
A2 >> P2
A3 >> P3
A4
If the first three inequalities are satisfied, that is, current assets exceed the external liabilities of the enterprise, then the last inequality, which has a deep economic meaning, is necessarily satisfied: the enterprise has its own working capital; the minimum condition for financial stability is met.

Failure to meet any of the first three inequalities indicates that balance sheet liquidity differs to a greater or lesser extent from absolute.

Current ratio

The current ratio shows whether the company has enough funds that can be used to pay off its short-term obligations during the year. This is the main indicator of the solvency of an enterprise. The current liquidity ratio is determined by the formula

Ktl = (A1 + A2 + A3) / (P1 + P2)

Quick ratio

The quick liquidity ratio, or the “critical assessment” ratio, shows how much an enterprise’s liquid funds cover its short-term debt. The quick liquidity ratio is determined by the formula

Kbl = (A1 + A2) / (P1 + P2)

Absolute liquidity ratio

The absolute liquidity ratio shows how much of the accounts payable the company can pay off immediately. The absolute liquidity ratio is calculated using the formula

Cal = A1 / (P1 + P2)

Overall balance sheet liquidity indicator

For a comprehensive assessment of the liquidity of the balance sheet as a whole, it is recommended to use the general indicator of liquidity of the balance sheet of the enterprise, which shows the ratio of the sum of all liquid funds of the enterprise to the sum of all payment obligations (short-term, long-term, medium-term), provided that various groups of liquid funds and payment obligations are included in the specified amounts with certain weighting coefficients that take into account their significance in terms of the timing of receipt of funds and repayment of obligations.

The overall balance sheet liquidity indicator is determined by the formula

Col = (A1 + 0.5A2 + 0.3A3) / (P1 + 0.5P2 + 0.3P3)

During the analysis of balance sheet liquidity, each of the considered liquidity ratios is calculated at the beginning and end of the reporting period. If the actual value of the coefficient does not correspond to the normal limit, then it can be estimated by its dynamics (increase or decrease in value).

Liquidity analysis

Balance sheet liquidity is the degree to which the enterprise's liabilities are covered by assets, the period of conversion of which into cash corresponds to the period of repayment of liabilities. The solvency of the enterprise depends on the degree of balance sheet liquidity. The main sign of liquidity is the formal excess of the value of current assets over short-term liabilities. And the greater this excess, the more favorable the financial condition of the enterprise in terms of liquidity.

The relevance of determining balance sheet liquidity acquires particular importance in conditions of economic instability, as well as during the liquidation of an enterprise as a result of it. Here the question arises: does the enterprise have enough funds to cover its debt. The same problem arises when it is necessary to determine whether the enterprise has enough funds to pay creditors, i.e. the ability to liquidate (repay) debt with available funds. In this case, speaking of liquidity, we mean the presence of working capital at the enterprise in an amount theoretically sufficient to repay short-term obligations.

To analyze the liquidity of an enterprise's balance sheet, asset items are grouped according to the degree of liquidity - from the most quickly converted into cash to the least. Liabilities are grouped according to the urgency of payment of obligations.

To assess balance sheet liquidity taking into account the time factor, it is necessary to compare each asset group with the corresponding liability group.

1) If the inequality A1 > P1 is true, then this indicates the solvency of the organization at the time of drawing up the balance sheet. The organization has enough absolutely and most liquid assets to cover its most urgent obligations.

2) If the inequality A2 > P2 is feasible, then quickly realizable assets exceed short-term liabilities and the organization can be solvent in the near future, taking into account timely settlements with creditors and receipt of funds from the sale of products on credit.

3) If the inequality A3 > P3 is feasible, then in the future, with timely receipt of funds from sales and payments, the organization can be solvent for a period equal to the average duration of one turnover of working capital after the balance sheet date.

Fulfillment of the first three conditions automatically leads to the fulfillment of the condition: A4
Fulfillment of this condition indicates compliance with the minimum condition for the financial stability of the organization, the availability of its own working capital.

Based on a comparison of groups of assets with the corresponding groups of liabilities, a judgment is made about the liquidity of the enterprise’s balance sheet

A comparison of liquid funds and liabilities allows us to calculate the following indicators:

Current liquidity, which indicates the solvency (+) or insolvency (-) of the organization for the period of time closest to the moment under consideration: A1+A2=>P1+P2; A4 prospective liquidity is a forecast of solvency based on a comparison of future receipts and payments: A3>=P3; A4 insufficient level of prospective liquidity: A4 balance is not liquid: A4 => P4

However, it should be noted that the analysis of balance sheet liquidity carried out according to the above scheme is approximate; a more detailed analysis of solvency using financial ratios is performed.

1. The current ratio shows whether the enterprise has enough funds that it can use to pay off its short-term obligations during the year. This is the main indicator of the solvency of an enterprise. The current liquidity ratio is determined by the formula:

K = (A1 + A2 + A3) / (P1 + P2)

In world practice, the value of this coefficient should be in the range of 1-2. Naturally, there are circumstances in which the value of this indicator may be greater, however, if the current liquidity ratio is more than 2-3, this, as a rule, indicates an irrational use of the enterprise’s funds. A value of the current liquidity ratio below one indicates the insolvency of the enterprise.

2. The quick liquidity ratio, or the “critical assessment” ratio, shows how much the liquid assets of the enterprise cover its short-term debt. The quick liquidity ratio is determined by the formula:

K = (A1 + A2) / (P1 + P2)

Liquid assets of an enterprise include all current assets of the enterprise, with the exception of inventory. This indicator determines what proportion of accounts payable can be repaid using the most liquid assets, i.e. it shows what part of the enterprise’s short-term liabilities can be immediately repaid using funds in various accounts, short-term securities, as well as settlement proceeds. The recommended value of this indicator is from 0.7-0.8 to 1.5.

3. The absolute liquidity ratio shows what part of the accounts payable the company can pay off immediately. The absolute liquidity ratio is calculated using the formula:

K = A1 / (P1 + P2)

The value of this indicator should not fall below 0.2.

4. For a comprehensive assessment of balance sheet liquidity as a whole, it is recommended to use the general indicator of liquidity of the enterprise’s balance sheet, which shows the ratio of the sum of all liquid funds of the enterprise to the sum of all payment obligations (short-term, long-term, medium-term), provided that various groups of liquid funds and payment obligations are included in specified amounts with certain weighting coefficients that take into account their significance in terms of the timing of receipt of funds and repayment of obligations. The overall balance sheet liquidity indicator is determined by the formula:

K = (A1 + 0.5*A2 + 0.3*A3) / (P1 + 0.5*P2 + 0.3*P3)

The value of this coefficient must be greater than or equal to 1.

5. The equity ratio shows how sufficient the enterprise’s own working capital is, which is necessary for its financial stability. It is defined:

K = (P4 - A4) / (A1 + A2 + A3)

The value of this coefficient must be greater than or equal to 0.1.

6. The coefficient of maneuverability of functional capital shows what part of the operating capital is contained in reserves. If this indicator decreases, then this is a positive fact. It is determined from the relation:

K = A3 / [(A1+A2+A3) - (P1+P2)]

During the analysis of balance sheet liquidity, each of the considered liquidity ratios is calculated at the beginning and end of the reporting period. If the actual value of the coefficient does not correspond to the normal limit, then it can be estimated by its dynamics (increase or decrease in value). It should be noted that in most cases, achieving high liquidity is at odds with achieving higher profitability. The most rational policy is to ensure the optimal combination of liquidity and profitability of the enterprise.

Along with the above indicators, to assess the state of liquidity, you can use indicators based on: net cash flow (NCF - Net Cash Flow); cash flow from operating activities (CFO - Cash Flow from Operations); cash flow from operating activities, adjusted for changes (OCF - Operating Cash Flow); cash flow from operating activities, adjusted for changes in working capital and satisfaction of investment needs (OCFI - Operating Cash Flow after Investments); free cash flow (FCF - Free Cash Flow).

At the same time, regardless of the stage of the life cycle at which the enterprise is located, management is forced to solve the problem of determining the optimal level of liquidity, since, on the one hand, insufficient liquidity of assets can lead to both insolvency and possible bankruptcy, and on the other hand, excess liquidity may lead to a decrease. Because of this, modern practice requires the emergence of increasingly advanced procedures for analyzing and diagnosing the state of liquidity.

Absolute liquidity

Absolute liquidity ratio (Cash ratio) is a financial ratio equal to the ratio of cash and short-term financial investments to short-term liabilities (current liabilities). The source of data is the company’s balance sheet in the same way as for current liquidity, but only cash and cash equivalents are taken into account as assets: (line 260 + line 250) / (line 690-650 - 640).

Cal = (Cash + short-term financial investments) / Current liabilities

Cal = (Cash + short-term financial investments) / (Short-term liabilities - Deferred income - Reserves for future expenses)

It is believed that the normal value of the coefficient should be at least 0.2, i.e. every day 20% of urgent obligations can potentially be paid. It shows how much of the short-term debt the company can pay off in the near future.

Absolute liquidity - the highest level of liquidity; inherent in money.

Liquidity indicators

An enterprise can be liquid to a greater or lesser extent, since current assets include heterogeneous working capital, among which there are both easily sold and difficult to sell for repaying external debt.

According to the degree of liquidity, items of current assets can be divided into three groups:

1. liquid assets that are immediately ready for sale (cash, highly liquid securities);
2. liquid funds at the disposal of the enterprise (obligations of buyers, inventories);
3. illiquid funds (claims to debtors with a long period of formation (doubtful accounts receivable), work in progress).

The assignment of certain items of working capital to these groups may vary depending on specific conditions: the debtors of an enterprise include very diverse items of receivables, and one part of it may fall into the second group, the other into the third; with different durations of the production cycle, work in progress can be classified either in the second or third group, etc.

Short-term liabilities include obligations of varying degrees of urgency. In the practice of financial analysis, the following indicators are used:

Current ratio;
quick ratio;
absolute liquidity ratio.

Using these indicators, you can find the answer to the question of whether the company is able to fulfill its short-term obligations on time. This applies to the most liquid part of the company's property and its obligations with the shortest payment period. These indicators are calculated on the basis of balance sheet items. On the balance sheet, assets are distributed according to the degree of liquidity or depending on the time required to convert them into cash. Liquidity ratios reveal the nature of the relationship between current assets and short-term liabilities (current liabilities) and reflect the company's ability to meet its financial obligations on time.

The current ratio, or working capital ratio, is calculated as follows:

Current ratio = Current assets (5)\ Current liabilities (14)

In 1992 610/220 = 2.8
in 1993 700/300 = 2.3

This is how many Czech crowns there are for one crown of short-term liabilities.

The current ratio shows how many times short-term liabilities are covered by the company's current assets, i.e. how many times a company can satisfy the claims of creditors if it converts all the assets currently at its disposal into cash.

If a company experiences certain financial difficulties, of course, it pays off its debt much more slowly; additional resources are sought (short-term bank loans), trade payments are postponed, etc. If short-term liabilities increase faster than current assets, the current ratio decreases, which means (in unchanged conditions) the enterprise has liquidity problems.

The current liquidity ratio depends on the size of individual active items and on the duration of the turnover cycle of individual types of assets. The longer their turnover cycle, the higher the company's "security level" would seem to be. However, it is necessary to separate actually functioning assets from those that outwardly improve the indicator under consideration, but in fact do not have an effective impact on the activity of the enterprise. Thus, the current ratio depends on the structure of inventories and on their correct (actual) assessment in terms of their liquidity; on the structure of receivables subject to repayment due to the expiration of the statute of limitations, bad debts, etc.

The current ratio shows the extent to which short-term liabilities are covered by short-term assets, which must be converted into cash over a period approximately corresponding to the maturity of short-term debt. Therefore, this indicator measures the ability of an enterprise to meet its short-term obligations.

According to standards, it is believed that this coefficient should be between 1 and 2 (sometimes 3). The lower limit is due to the fact that current assets must be at least sufficient to pay off short-term obligations, otherwise the company may become insolvent on this type of loan. An excess of current assets over short-term liabilities by more than twice is also considered undesirable, since it indicates an irrational investment by the company of its funds and ineffective use of them. In addition, when analyzing this coefficient, special attention is paid to its dynamics.

Accounts receivable in the balance sheet have already been cleared of doubtful debts. The reserves are easily marketable.

JSC "Kovoplast" is able to cover its obligations through current assets.

Quick liquidity ratio (acid test, quick ratio). Not all of a company's assets are equally liquid; The least liquid item of current assets with the slowest turnover can be called inventories. Cash can serve as a direct source of payment of current obligations, and inventories can be used for this purpose only after they are sold, which presupposes not only the presence of a buyer, but also the availability of funds from the buyer. This includes stocks of not only finished products, but also semi-finished products, raw materials, materials, etc. Stagnation of finished products can disrupt the marketability of inventories. Therefore, when measuring the ability to meet obligations, when testing liquidity at a certain point in time, inventories are excluded.

Quick liquidity ratio =("Current assets" - "Inventories"\"Current liabilities"

For analysis, it is useful to consider the relationship between the quick ratio and the current ratio. A very low quick liquidity ratio indicates that inventory is too heavily weighted on the company's balance sheet. The significant difference between these indicators is noted mainly in the balance sheets of commercial companies, where it is assumed that inventories are quickly circulated and have high liquidity. Businesses that operate seasonally may also have large inventories, especially before the sales season begins or immediately after it ends. However, over the course of the year this seasonal “irregularity” evens out.

In the Kovoplast company, the quick liquidity ratio can be considered satisfactory; the company is able to cover its obligations and does not feel the need to sell its inventories.

The most liquid items of working capital are the funds that the enterprise has in bank and cash accounts, as well as in the form of securities. The ratio of cash to current liabilities is called the absolute liquidity ratio. This is the most stringent solvency criterion, showing what portion of short-term liabilities can be repaid immediately.

Absolute liquidity ratio = (Money + Short-term securities)\ Short-term. obligations

Asset liquidity

Asset liquidity is the ability of assets to compete in relation to market price. The very fact of being converted into money is liquidity. There are three groups of assets in the financial world - highly liquid, low liquid and illiquid assets.

Highly liquid assets, of course, consist of the cash and securities of the largest enterprises.
Real estate, shares and small companies are considered low-liquid.
Illiquid assets are those assets that are not a product of the stock markets and do not attract the interest of other shareholders.

A company achieves high liquidity if its assets are purchased at a price much higher than they are sold; this difference determines the indicator and level of liquidity, which is achieved mainly when there are a large number of sellers and buyers in the market. Often, organizations will artificially increase trading volume in order to force trades to take place in assets.

Before buying shares of small companies, the market forecast in calm times and during market turmoil is of great importance, otherwise the purchase of such shares may result in financial loss or freezing of money during a crisis, although the price of low-liquid assets in difficult financial periods can sometimes reach high levels.

To summarize: asset liquidity is the ability of assets to be quickly sold at a price close to the market price.

Liquidity calculation

The purpose of liquidity analysis is to assess the ability of an enterprise to fulfill short-term obligations in a timely manner at the expense of current assets.

Liquidity (current solvency) is one of the most important characteristics of the financial condition of an organization, which determines the ability to pay bills on time and is actually one of the indicators of bankruptcy. The results of liquidity analysis are important from the point of view of both internal and external users of information about the organization.

Calculation and interpretation of key indicators

To assess liquidity, the following indicators are used:

The total liquidity ratio characterizes the company's ability to meet short-term obligations using all current assets. Classically, the total liquidity ratio is calculated as the ratio of current assets (current assets) and short-term liabilities (current liabilities) of an organization.

The current liabilities of the Russian Balance Sheet contain elements that, by their nature, are not obligations to be repaid - these are future income and reserves for future expenses and payments. When assessing an organization’s ability to pay short-term obligations, it is advisable to exclude these components from current liabilities.

Total liquidity ratio = Current assets / (Current liabilities – (BP income + PRP reserves))

Where
BP income – deferred income, monetary units
PRP reserves – reserves for future expenses and payments

The items listed above are reflected in current liabilities.

All indicators used in the calculations must refer to the same reporting date.

The absolute (instant) liquidity ratio reflects the ability of an enterprise to fulfill short-term obligations using free cash and short-term financial investments

Absolute liquidity ratio = Cash + KFV / (Current liabilities – (BP Income + PRP Reserves))

Where
KFV – short-term financial investments, monetary unit

The short-term (intermediate) liquidity ratio characterizes the ability of an enterprise to fulfill short-term obligations using the more liquid part of current assets.

When calculating this indicator, the main issue is the division of current assets into liquid and low-liquid parts. This question in each specific case requires separate research, since only cash can unconditionally be classified as the liquid part of assets.

In the classic version of calculating the intermediate liquidity ratio, the most liquid part of current assets is understood as cash, short-term financial investments, non-overdue accounts receivable (accounts receivable) and finished products in the warehouse.

Urgent liquidity balance = Cash + CFC + Debt. Debt + Finished Products / (Current Liabilities – (BP Income + PRP Reserves))

For enterprises that have significant reserves for future expenses and (or) future income, liquidity ratios calculated without adjusting current liabilities will be unjustifiably underestimated. It is necessary to take into account that the liquidity indicators of Russian enterprises are already low.

When calculating an enterprise's liquidity indicators, fewer difficulties arise than when interpreting them. For example, managerial interpretation of the absolute liquidity indicator in fractional terms (0.05 or 0.2) is difficult. How to assess whether the resulting value is optimal, acceptable or critical for the enterprise? To obtain a clearer picture of the liquidity status of an enterprise, it is possible to calculate a modification of the absolute liquidity ratio - the coverage ratio of average daily cash payments.

The point of this calculation is to determine how many “days of payments” cover the funds available to the enterprise.

The first step of the calculation is to determine the amount of average daily payments made by the organization. The source of information on the amount of average daily payments can be the statement of financial results (Form N2), or more precisely, the sum of the values ​​​​for the positions of this report “Cost of sales of products”, “”, “Administrative expenses”. Non-cash payments such as depreciation must be subtracted from this amount. This recommendation is given in foreign literature. However, it is difficult to directly use it in relation to Russian enterprises.

Firstly, Russian enterprises often have significant amounts of stocks of materials and finished products in warehouses. In this regard, the amount of real payments associated with the implementation of the production process may be much greater than the cost of goods sold reflected in form N2. Another feature of Russian business that must be taken into account in calculations is barter transactions, in which part of the resources used in the production process are paid not with money, but with the company’s products.

Thus, to determine the average daily cash outflows, it is possible to use information on the cost of goods sold (less depreciation), but taking into account changes in the Balance Sheet items “Inventory”, “Work in Progress” and “Finished Goods”, taking into account tax payments for the period and minus material resources received through barter.

It is correct to take into account both positive (increase) and negative (reduction) increases in inventories, work in progress and finished goods.

Thus, the calculation of average daily payments is carried out according to the formula:

Cash payments for the period = (c/s of manufactured products + administrative expenses + selling expenses) for the period * (1 - share of barter in costs) - for the period + Tax payments for the period * (1 - share of barter in taxes) + Increase in inventories of materials , work in progress, finished products for the period * (1 - share of barter in costs) +.. other cash payments.

The source of information on cost of goods sold is the income statement. The source of information on the magnitude of increases in inventories, work in progress, and finished products is the aggregated balance sheet.

Note that to carry out the calculation it is necessary that

Information in Form No. 2 was presented for the period (not on an accrual basis);
all indicators used in the calculations related to the same time period.

For a more accurate calculation of average daily payments, in addition to information on the costs of production and sales of products, you can take into account tax payments for the period, expenses for the maintenance of the social sphere and other periods. However, it is necessary to observe the principle of reasonable sufficiency - in calculations it is recommended to take into account only “significant” payments. Thus, enterprises can create individual modifications to the formula for calculating average daily payments.

For example, depreciation charges may not be excluded from the cost of products sold. In this way, it is possible to compensate for part of other payments that need to be included in the calculation (for example, taxes or social payments).

The total amount of taxes paid for the period is not directly highlighted in form No. 2, so it is possible to limit it (highlighted in form No. 2).

If the share of offsets and barter in the enterprise’s calculations is small, you can ignore the adjusting factors of the formula, designated as (1-share of barter).

If the share of barter (mutual offsets) in the organization’s calculations is small and other cash costs are comparable to the amount of depreciation accrued for the period, the calculation of cash costs for the period can be carried out using the formula

Cash payments for the period = (c/s of manufactured products + administrative expenses + selling expenses + Income tax + Increase in inventories of materials, work in progress, finished goods) for the period.

To determine the amount of average daily payments, it is necessary to divide the total cash payments for the period by the duration of the analyzed period in days (Int).

Average daily payments = cash costs for the period / Interval

To determine how many “days of payments” are covered by the company’s cash, it is necessary to divide the balance of funds on the Balance Sheet by the amount of average daily payments.

Coverage ratio for average daily payments with cash = Cash balance (according to Balance) / Average daily payments

When calculating the coverage ratio of average daily cash payments, a fair remark may arise: the cash balance on the Balance Sheet may not accurately characterize the amount of cash that the company had during the analyzed period.

For example, shortly before the reporting date (the date reflected in the Balance Sheet), large payments could be made, and therefore the cash balance on the Balance Sheet is insignificant. The opposite situation is possible: during the analyzed period, the company’s cash balance was insufficient, but shortly before the reporting date the customer repaid the debt, and therefore the amount of money in the company’s current account increased.

Note that both the classic indicator of absolute liquidity and liquidity in payment days are based on the data reflected in the Balance Sheet. In this regard, the error of both coefficients is the same.

The obtained liquidity values ​​in payment days are more informative than liquidity ratios and allow us to determine acceptable absolute liquidity values ​​for an enterprise.

For example, the head of an enterprise that has stable terms of settlements with suppliers and customers, producing serial products, believes that the coverage ratio of average daily cash payments of 10-15 days is quite acceptable. That is, a cash balance covering 15 days of average payments is considered acceptable. In this case, the absolute liquidity ratio can be 0.08, that is, be lower than the value recommended in Western practice of financial analysis.

Calculation of liquidity indicators acceptable for a given enterprise (organization)

In Western practice, to assess the liquidity of an enterprise (organization), a comparative method is used, in which the calculated values ​​of the coefficients are compared with the industry average. Despite the fact that the optimal values ​​of liquidity ratios for a particular industry and a particular enterprise are unique, the following values ​​are often used as a guideline:

For the total liquidity ratio – more than 2,
for the absolute liquidity ratio – 0.2 – 0.3,
for the intermediate liquidity ratio – 0.9 – 1.0.

In Russia, there is not yet an updated statistical database of optimal values ​​of liquidity indicators for enterprises (organizations) in various fields of activity. Therefore, in Russian practice, when assessing liquidity, it is recommended

Pay attention to the dynamics of changes in coefficients;
determine the values ​​of the coefficients acceptable (optimal) for a given specific enterprise

It is known that the ability of an organization to meet current obligations depends on two fundamental points:

Terms of mutual settlements with suppliers and buyers;
degree of liquidity of current assets (property structure)

The conditions listed above are basic when calculating the total liquidity indicator acceptable for a given specific enterprise.

The calculation of the acceptable value of total liquidity is based on the following rule - to ensure an acceptable level of liquidity of the organization, it is necessary that the least liquid current assets and part of the current payments to suppliers that are not covered by proceeds from buyers are financed from its own capital. Thus, the first step of the calculation is to determine the amount of own funds necessary to ensure uninterrupted payments to suppliers, as well as the allocation of the least liquid part of the organization’s current assets.

The amount of the least liquid part of current assets and own funds necessary to cover current payments to suppliers represents the total amount of own funds that must be invested in the organization's current assets to ensure an acceptable level of liquidity. In other words, this is the amount of current assets that must be financed from own funds.

Knowing the actual value of the organization's current assets and the amount of current assets that must be financed from its own funds, it is possible to determine the permissible amount of borrowed sources of financing current assets - that is, the permissible amount of current liabilities.

The total liquidity ratio acceptable for a given enterprise is defined as the ratio of the actual value of current assets to the estimated acceptable value of current liabilities.

Liquidity management

As a rule, companies and enterprises have a very large number of different accounts opened in many banks. Financial services have to solve complex problems every day to ensure the liquidity of total funds to meet payment obligations:

From which accounts, how much, when and where should funds be transferred?
In what order should funds transfers be made?
How to prevent cash gaps?
What is the minimum required aggregate balance in bank accounts, etc.

The Liquidity Management solution, which is based on the functionality of SAP Cash and Liquidity Management, provides financial management with the necessary tool to perform all emerging cash flow management tasks.

Liquidity management is integrated with other application components, such as financial accounting cash inflow/outflow, purchasing management and sales management.

Liquidity management performs the following operational tasks:

Daily cash placement (short-term perspective)
o Processing bank statements
o Filling out the Daily Summary (monetary position) with additional information
o Making payments
o Concentration of funds in accordance with the payment strategy
o Conducting financial transactions
Daily liquidity forecast (medium-term perspective)
o View current orders, delivery status, invoices
o Analysis of currencies and financial transactions
Regular liquidity planning (long-term perspective)
o Analysis of liquidity plans (payment calendar)
o Development of an effective liquidity strategy

The daily financial summary (short-term view) is the result of entering all payments within a short time horizon. Daily financial reports are provided from various sources:

Bank transactions and bank account transactions;
expected incoming or outgoing payments from investments/raising funds in,
FI postings to G/L accounts relevant for cash management;
manual entry of individual records (advice notes);
cash flows of business transactions managed through the Financial Management component.

The liquidity forecast (medium-term perspective) shows the movement of liquidity across accounts. The information displayed relates to expected payment streams.

The basis of the liquidity forecast is incoming and outgoing payments for each position of debtors and creditors. Because the planning and forecasting of these payments is usually long-term, the probability that payment will be made on the scheduled day is less than the probability of payment recorded in the daily financial summary.

The liquidity forecast integrates incoming and outgoing payments from financial accounting (example: open items), sales (example: orders) and purchasing (example: supply orders) to analyze medium- and long-term liquidity dynamics.

Liquidity risk

Liquidity risk is one of the main types that a risk manager needs to pay attention to. It is necessary to distinguish between two similar in name, but different, in essence, concepts of liquidity risk: - liquidity risk is the risk that the real price of a transaction may differ greatly from the market price for the worse. This is market liquidity risk. - liquidity risk refers to the danger that the company may become insolvent and will not be able to fulfill its obligations to counterparties. This is balance sheet liquidity risk. One of the consequences associated with the process of finance and financial risk has been the increased influence of market liquidity on portfolio risk.

Almost all modern models and methods for assessing the market risk of a portfolio require entering the price values ​​of the assets that make up the portfolio as input data. As a rule, average market prices at some point in time or the price of the last transaction are used. But the real price of each specific transaction almost always differs from the market average. There is no concept of “market price” in the market; at each moment of time there is a demand price and an supply price.

As long as the market situation is stable and it is in a balanced state, the costs of entering into a transaction do not have a strong impact on the risk of the portfolio, which can be assessed quite accurately. But when the market leaves the state of equilibrium, panic or crisis begins, transaction costs can increase tens or hundreds of times.

To carry out any operation on the market, there must be a counterparty to the transaction who is willing to perform the opposite operation. In the event of a market crisis, this is disrupted. If the majority of market participants strive to make a transaction in one direction, then there will not be enough counterparties for all market participants. If the transaction is large, you will either have to spend a lot of time waiting for the right price, constantly being exposed to market risk, or incur high transaction costs due to liquidity risk.

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