General liquidity. Total liquidity ratio
Liquidity– the ability of assets to be quickly sold at a price close to the market. Liquidity is the ability to convert into money.
Current liquidity
The current (total) liquidity ratio (coverage ratio; English current ratio, CR) is a financial ratio equal to the ratio of current (current) assets to short-term liabilities (current liabilities).
Ktl = (OA - DZd) / KO, where: Ktl – current ratio;
OA – current assets; DZd – long-term receivables; KO – short-term liabilities.
The ratio reflects the company's ability to pay off current (short-term) obligations using only current assets. The higher the indicator, the better the solvency of the enterprise.
A coefficient value of 2 or more is considered normal (this value is most often used in Russian regulations; in world practice, 1.5 to 2.5 is considered normal, depending on the industry). A value below 1 indicates a high financial risk associated with the fact that the company is not able to reliably pay current bills. A value greater than 3 may indicate an irrational capital structure.
Quick (urgent) liquidity Quick ratio
- financial ratio equal to the ratio of highly liquid current assets 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 inventories are not taken into account as assets, since if they are forced to be sold, losses will be maximum among all current assets.
Kbl = (Short-term accounts receivable + Short-term financial investments + Cash) / Current liabilities
The ratio reflects the company's ability to pay off its current obligations in the event of difficulties with the sale of products.
A coefficient value of at least 1 is considered normal.
Absolute liquidity- 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 funds close to it in essence are taken into account as assets:
Cal = (Cash + short-term financial investments) / Current liabilities
Unlike the two above, this coefficient is not widely used in the West. According to Russian regulations, a coefficient value of at least 0.2 is considered normal.
44. Forecasting solvency indicators.
When deciding on attracting credit resources, it is necessary to determine the creditworthiness of the enterprise.
At the present stage, the following coefficients are accepted:
Current liquidity ratio (coverage), K p;
Coefficient of provision with own working capital, K os;
Coefficient of restoration (loss) of solvency, K uv.
These indicators are calculated based on balance sheet data using the following formulas:
The coefficient K p characterizes the overall provision of the enterprise with working capital for conducting business activities and timely repayment of the enterprise's urgent obligations.
The coefficient K uv shows whether the enterprise has a real opportunity to restore or lose its solvency within a certain period. The basis for recognizing the balance sheet structure as unsatisfactory and the enterprise as insolvent is the fulfillment of one of the following conditions: K p< 2 или К ос >0.1. It should be remembered that when deciding whether to issue a loan from a bank or other credit organization, the following system of financial ratios is calculated:
Absolute liquidity ratio K al;
Intermediate coverage coefficient K pr;
Overall coverage ratio K p;
Independence coefficient Kn.
The absolute liquidity ratio shows the proportion of short-term liabilities that can be repaid using highly liquid assets and is calculated using the formula, the standard value of the indicator is 0.2 – 0.25:
The intermediate coverage ratio shows whether the company will be able to pay off its short-term debt obligations on time. It is calculated by the formula:
Calculating the total coverage ratio is similar to determining the current ratio. The financial independence ratio characterizes the enterprise's provision of its own funds to carry out its activities. It is determined by the ratio of equity to the balance sheet currency and is calculated as a percentage.
The optimal value that ensures a fairly stable financial position in the eyes of investors and creditors: 50 – 60%.
45. Own and borrowed resources of the enterprise
Borrowed and own funds of the enterprise - collectively determine the liquidity of its assets, and directly affect the size of financial and other funds that provide the opportunity to use them at a specific moment or period of time.
Borrowed funds allow an enterprise to increase production, turnover, gain additional profit and even pay off previous debts and much more.
In addition to borrowed funds, to obtain certain financial advantages, an enterprise can also use attracted funds, which, unlike borrowed funds, are not actually repaid - for example, equity shares and gratuitous government financing.
Ordinary entrepreneurs can also actively use borrowed funds. The state policy of the Russian Federation for the development of entrepreneurial activity, through attracting borrowed funds from various sources, provides for obtaining interest-free loans in accordance with current legislation. In addition, such loans are not taxed.
Taxes will only be on the income received, in the case of a cash loan - in the case of a material loan, the material benefit is not calculated. You can use borrowed funds constantly or regularly if it is effective and has a stable profit, or is a necessity.
However, it is advisable to monitor very carefully and pay attention to debt-to-equity ratio and maintain a clearly defined balance - it is good to have a certain strategy of action in case of unforeseen circumstances, since in the case of using borrowed funds, there is a certain threshold of financial losses, beyond which you will not be able to restore your business and will immediately or after a certain time become bankrupt.
Here, it is also necessary to take into account - gearing ratio- it can be approximately calculated by dividing the total amount of existing loans and interest charges on them by total assets and future income.
The value of this coefficient will be one of the fundamental factors in granting you loans, that is, the lower the coefficient, the greater the likelihood of receiving a loan.
In general, it is advisable to use gratuitous and especially reimbursable borrowed funds only when you are already well on your feet and understand your business segment.
Now, the state legislation of the Russian Federation provides for free subsidies for opening a private business, in the form of partial financing of initial capital - but it does not provide guarantees of the success of its development.
Total liquidity ratio is the ease of selling or converting certain material or other assets into real cash in order to cover current financial obligations. Thus, the analysis of this ratio provides a forecast of whether the enterprise can fully cover all financial obligations that it currently has.
What is liquidity determined by?
All assets that an enterprise has are fully reflected in its balance sheet, and each of these factors has its own liquidity:
- funds currently present in the cash registers or in the company’s accounts;
- securities or bank bills;
- existing accounts receivable, as well as corporate securities and loans issued;
- stocks of raw materials and goods present in warehouses;
- buildings and constructions;
- equipment and machinery;
- unfinished construction.
What it is?
The total liquidity ratio is a financial indicator for the calculation of which the company’s reporting is used. This tool allows you to determine whether a company can pay off its current debt using its current assets. The main meaning of such indicators is to compare the number of debts of the company with its working capital necessary to ensure the repayment of such debts.
Thus, several liquidity ratios are considered, as well as formulas for their calculation:
- quick ratio;
- absolute liquidity ratio;
- net working capital.
Current liquidity
The current ratio (coverage ratio or total liquidity ratio) is the ratio of a company's current assets to its various short-term liabilities. The balance sheet is used as the source of this data. At the same time, there is nothing difficult in calculating the total liquidity ratio if all the necessary information is available. The formula is as follows:
- current assets (not taking into account long-term receivables) / all current liabilities present.
What does it show?
This ratio shows whether the company can pay off any current liabilities using only its current assets. The higher this indicator is, the more the solvency of a particular organization will increase. The total liquidity ratio, the calculation formula for which was shown above, determines not only how solvent the company is at the moment, but also allows you to determine the financial condition of the enterprise in the event of any emergency circumstances.
The normal value of this coefficient is from 1.5 to 2.5. In this case, the figure will depend on the area in which the company in question operates. It is worth noting that any deviations both below and above the established norm are unfavorable. If the current (total) liquidity ratio is less than 1, then this indicates a serious financial risk, because the company does not have the ability to reliably pay its short-term obligations. If this coefficient has a value of more than 3, then the capital structure used by the enterprise may be considered irrational.
Depending on the industry in which the company operates, as well as the quality and structure of the assets available to it, this value can vary significantly.
Peculiarities
It is worth noting that the coverage ratio (total liquidity) itself does not provide a complete picture of the performance of a particular organization. In the vast majority of cases, those companies that have insignificant production and material inventories, but at the same time have access to money for bills payable, can safely work with lower indicators of this ratio. The same cannot be said about enterprises that have large inventories of material assets and sell their goods on credit.
Another option for checking the sufficiency of existing assets is to determine immediate liquidity. It is worth noting that often all kinds of suppliers, banks and shareholders are interested in this particular indicator, and do not try to find out the overall liquidity ratio of the balance sheet, since the company in the course of its work may encounter various circumstances in which it will need to instantly pay off certain unforeseen expenses . Thus, it will need to use all securities, cash, accounts receivable, and any other funds, that is, all assets that can ultimately be converted into cash.
What does this ratio show?
The quick liquidity ratio also allows you to determine whether a company can pay off all its current liabilities using current assets. In this it is similar to what the total liquidity ratio represents. But in this case, the difference is that the calculation uses exclusively medium-liquid and highly liquid current assets, which include money in operational accounts, all kinds of raw materials and supplies, goods, as well as receivables with a short maturity.
How does it differ from the general one?
In principle, the total liquidity ratio characterizes the same thing, but in this case, completely different indicators are used in the calculation process, that is, unfinished production is not taken into account, as well as the company’s reserves of specialized materials, semi-finished products and all kinds of components. The balance sheet is also used as a source of all the necessary information, but the assets present in the company are not taken into account, because if they are forced to sell, the losses will be the maximum possible.
How important is it?
In fact, many do not understand that this financial ratio is one of the most important and shows how many short-term obligations can be immediately repaid using various funds present in the accounts, as well as short-term securities or proceeds from accounts receivable debt. The higher this indicator is, the higher the company's solvency will become. A normal indicator is a value of more than 0.8, which shows that upcoming revenues and cash already available to the company can fully cover the company’s current debts.
How to increase it?
In order to increase the value of this indicator, it is necessary to take measures aimed at increasing the existing working capital, as well as attract all kinds of long-term loans and credits. However, if the value of this coefficient is more than three, this may indicate that the capital structure is irrational. There are many reasons why such liquidity can be formed. Examples: slow turnover of funds invested in various inventories, as well as an increase in accounts receivable.
For this reason, it is quite important to also take into account the absolute liquidity ratio, the value of which should be higher than 0.2.
What does the absolute liquidity ratio show?
This ratio demonstrates how much short-term debt an organization can repay using only the most liquid assets, that is, short-term securities, as well as the cash it has.
The absolute liquidity ratio is the ratio of cash, as well as existing short-term financial investments, to all short-term liabilities, that is, the current liabilities of the company. The balance sheet is used as a source of the necessary information in the same way as when determining current liquidity, but in this case only cash, as well as funds equal to them, are taken into account.
What should it be like?
As mentioned above, the norm is to maintain a value of this indicator of more than 0.2. The higher this figure is, the better the company's solvency will be. Again, an inflated figure indicates that the company has an irrational capital structure and also has too many unused assets.
Thus, if the cash balance is maintained at the level of the reporting date, then all of the company’s short-term debt as of that date can be fully repaid within five days. This regulatory restriction is used in the process of financial analysis by foreign specialists. However, there is no precise justification why, in order to maintain a normal level of liquidity, the amount of cash present must cover at least 20% of all current liabilities.
However, in any case, it is best to try to ensure that this indicator corresponds to a certain value and that your company has sufficient absolute liquidity in the current market, as this will contribute to the competitiveness of the enterprise and attract additional investments.
“Liquidity” is the ability of some assets of a certain enterprise to quickly transform (convert) into other types of assets that are currently more in demand.
The most precise concept of “liquidity” is defined by the unit of time during which an asset is transformed, usually into cash.
Liquidity in an enterprise, in essence, shows its ability to cover its obligations. That is why they separate assets that are sold within a certain (average) period at a market price and assets for which the deadlines for execution are clearly defined.
The liquidity of an enterprise, first of all, shows its ability to cover short-term obligations for working resources. The liquidity ratio gives the most accurate and general idea of the liquidity of a company's assets. In order for an enterprise to have a normal level of liquidity, a necessary condition is that the value of assets exceed the current amount of liabilities (“golden financial rule”).
How to interpret the meanings?
“Current liquidity ratio” (or as it is also called “total debt coverage ratio”) is an analytical indicator that is based on calculating the ratio between current assets and short-term (current) liabilities.
The current ratio shows how quickly and to what extent a company can pay off its short-term debts (with a maturity of no more than one year). The source of financing liabilities is current assets that have a certain market value.
The higher the current liquidity ratio, the more stable the situation at the enterprise, since the higher its solvency.
The occurrence of some kind of force majeure may force the company's management to sell part of its reserves. This type of activity is not the main profile of the company. The basis for calculating the current liquidity indicator is the company’s balance sheet (accounting form number 1).
Having calculated the current liquidity ratio, it is necessary to interpret it correctly.
If the coefficient value is below 1.5, then this is direct evidence that the company has some difficulties in covering its current obligations.
However, this situation can be resolved by obtaining sufficient cash flow through the company's operating activities. To do this, the expert needs to analyze the “Cash Flow Statement” (form No. 4), line 4111. For example, for companies engaged in retail trade, this situation is quite acceptable.
An overly inflated liquidity indicator often indicates insufficient use of working resources and limited access to short-term loans (including bank loans). For example, the accumulation of illiquid goods in a completely profitable company is characterized by a rapid increase in the current ratio.
Among other factors that may lead to an increase in the liquidity ratio, the following are highlighted:
- Tightening the terms of mutual settlements between suppliers and other counterparties.
- Excessive lending to customers (when a company has a large amount of receivables, and there are practically no requirements for customers regarding payment terms).
- Increasing stocks of raw materials and other materials in warehouses or in production.
At any enterprise, it is important to monitor the effectiveness of investments and evaluate the final result of the activity. For this purpose, special calculations are carried out. and types of profitability (current assets, fixed assets, etc.).
Profit from sales is the final result of the company's activities. Here you will learn how to calculate profit and how you can increase the profitability of your enterprise.
Calculation formula
The current ratio is calculated in accordance with this formula: K lt =OK/TO,
- OK – the size of the company’s working resources (capital);
- TO is the amount of short-term liabilities that must be paid by the company within one year from the date of their receipt.
Current ratio: balance sheet formula
The balance sheet of an enterprise serves as the basis for calculating the liquidity ratio. Absolutely all data is contained in the balance sheet.
- Where Klt is the liquidity ratio (current).
- Line 1200 – total of the company’s working capital – raw materials, supplies, cash (sum of lines 1210, 1220, 1230, 1240, 1250 and 1260).
- Stock 1510 – borrowed resources; line 1520 – accounts payable.
- Line 1550 – other types of financial liabilities of the company.
- Lines 1510, 1520, 1550 are part of the fifth section of the balance sheet called “Current liabilities”. This section also contains the line “Deferred income”, but its value is not taken into account in the calculation of liquidity.
To analyze an enterprise on its balance sheet until 2011 (old version), the following formula is used: K lt = line 290/(line 610+line 620+line 630+line 660),
- where K lt – liquidity ratio (current);
- line 290 – total of the company’s working capital;
- Stocks 610, 620, 630 and 660 are the company’s short-term financial liabilities.
The formula for calculating the current liquidity level ratio can be written based on the degree of liquidity of the components of working resources, as well as the urgency of debt payment: K lt = A k1 + A k2 + A k3 / (P a1 + P a2),
- where K lt – liquidity ratio (current);
- And k1 – lines 1240 and 1250 – assets with a high level of liquidity;
- A k2 – average liquid assets, line 1260;
- A k3 – assets with a low level of liquidity, lines 1210, 1220, 1230;
- P a1 – priority (urgent) obligations;
- P a2 – short-term loans (current liabilities), lines 1510 and 1550.
The higher the liquidity of working capital, the faster they can turn into cash.
Normative value
Standard values of current liquidity ratios are determined based on methodological guidelines for conducting a financial analysis of a company.
The normal value of the liquidity ratio, which is accepted by most enterprises, lies in the range of 1.5-2.5.
A coefficient value less than one indicates problems with the timely payment of short-term debt of the enterprise (for the vast majority of companies).
If we take a company operating in the field of retail sales or public catering, then a coefficient value of 1 will be considered normal, since these types of activities are characterized by a high level of short-term lending.
For industrial companies, the production cycle of which takes about a week, the normal value of the coefficient is considered to be 3, since these companies have a sufficient amount of inventory and work in progress.
Along with the current liquidity ratio, analysts use another indicator in their activities - the absolute liquidity ratio. What is it?
The absolute liquidity ratio is a financial instrument that is equal to the ratio of cash and short-term financial investments that the company makes to short-term liabilities (the current level of liabilities).
The data for calculating the absolute liquidity indicator is the organization’s balance sheet (according to accounting form No. 1).
Today, there are a large number of application programs that allow you to quickly and easily calculate any ratio and draw conclusions about the company’s activities.
The absolute liquidity ratio shows what percentage of short-term debts can be covered by the enterprise's cash resources and their equivalents in the form of deposits, securities or other highly liquid assets.
Calculations of the liquidity ratio are of interest not only to the company’s management, but also to other (external) entities:
- investors who monitor the current liquidity ratio before investing;
- suppliers of raw materials and components who decide to grant a deferred payment;
- bankers who are looking for guarantees for the return of short-term loan funds issued to a company.
The absolute liquidity ratio is calculated using the following formula: KLT = (monetary resources + short-term financial investments) / current level of liabilities.
In foreign financial analysis of enterprises, a regulatory restriction on the absolute liquidity indicator is applied. Thus, the regulatory limit for K lt is 0.2. This means that every day the company must be able to pay at least 20% of the amount of short-term financial obligations.
There is no exact justification for this standard value; however, most Russian companies have adopted the calculation of the absolute liquidity indicator. Thus, evidence of the normal activity of the enterprise is the fact that the amount of own funds should cover 20% of current (short-term) liabilities. However, for some domestic companies, given the heterogeneity of the structure of short-term debt, the Klt indicator should be at least 0.5.
Labor intensity helps to determine the ratio of effort and time as accurately as possible. and specific index standards, read carefully.
It may be useful for you: calculation of the average number of employees and fines for failure to submit a document to the tax service.
Video on the topic
Liquidity ratio shows the company's ability to pay off its existing debts using working capital. In the practice of financial analysis, several options are calculated liquidity ratio depending on the period during which the company can pay.
Types of liquidity: from absolute to total
Liquidity refers to the ability of a property to be quickly sold, that is, the duration of the process of its transition from real to monetary form.
Liquidity is considered based on calculation and analysis liquidity ratio, which determines the level of the company's provision with resources to repay short-term debts.
Based on the above criterion, the company’s assets are divided:
- for absolutely liquid (money and short-term investments);
- assets with a short period of sale (accounts receivable with a short repayment period);
- assets with an average period of conversion into cash (inventories and materials).
Based on this, liquidity ratios are divided into the following types:
- absolute liquidity ratio - calculated for absolutely liquid assets;
- quick liquidity ratio - calculated based on the amount of funds with a short and medium period of implementation;
- total liquidity ratio - determined based on the sum of all working capital available.
The economic essence of the above liquidity ratios comes down to a comparison of the funds available to the company and the short-term obligations to be paid. That is, each type liquidity ratios determines to what extent existing short-term debts can be covered by a particular type of property.
The considered classification determines the company’s assets from the point of view of the speed of their sale, therefore, liquidity ratios show the level of solvency of the company depending on the time required to sell assets. Based on this, it is possible to assess the existing solvency risks over time.
How to calculate an enterprise's liquidity ratio
Liquidity ratio formula each type can be described as the ratio of the corresponding type of assets to the total amount of short-term accounts payable. Information for the calculation is taken from the company's balance sheet.
As a denominator when determining liquidity ratio the result of section 5 of the balance sheet is accepted if the volume of estimated liabilities and deferred income included in it is insignificant. Otherwise, to calculate liquidity ratio You will only need to take indicators that determine the volume of loans and all types of accounts payable.
In the second method, the calculation algorithm liquidity ratios will be as follows:
- For liquidity ratio absolute:
K AL = (DS + KFV) / (KZ + KKZ + IKO),
- For liquidity ratio urgent:
K SL = (DS + KFV + DZ) / (KZ + KKZ + IKO),
- Total liquidity ratio formula:
K OL = OA / (KZ + KKZ + IKO),
K AL - liquidity ratio absolute;
To SL - liquidity ratio urgent;
K OL - total liquidity ratio;
DS - money at the disposal of the company;
KFV - volume of short-term financial investments;
DZ - debt of debtors with a repayment period of less than 1 year;
OA - the total amount of current assets;
KZ - accounts payable;
KKZ - short-term loans and borrowings;
ICO - the amount of other short-term liabilities.
To determine the general enterprise liquidity ratio The following formulas are also used:
K OL = OA / KO,
K OL - liquidity ratio general;
OA - the total volume of current assets;
KO - the total value of short-term liabilities.
Algorithm for calculating liquidity ratios on the balance sheet
You can convert the algorithm liquidity ratio calculation based on the balance line codes that are used to calculate them:
- For liquidity ratio absolute:
K AL = (1250 + 1240) / (1510 + 1520 + 1550),
- For liquidity ratio urgent:
K SL = (1250 + 1240 + 1230) / (1510 + 1520 + 1550),
- For liquidity ratio general:
K OL = 1200 / (1510 + 1520 + 1550),
1250 - money at the disposal of the company;
1240 - volume of short-term financial investments;
1230 - debt of debtors with a repayment period of less than 1 year;
1510 - loans and borrowings with short repayment periods;
1520 - accounts payable;
1550 - the amount of other short-term liabilities.
For general liquidity ratio, calculated by an alternative method, the formula will take the form
K OL = 1200 / 1500,
1200 - total amount of current assets;
1500 - the total volume of short-term liabilities.
What does a comparison of the standard values of liquidity ratios with the calculated ones show?
After calculations according to the above balance formulas liquidity ratios compared with reference values. What criteria are used to assess the current financial condition of an organization? So, the solvency of a company is satisfactory if liquidity ratios take the value:
- From 0.2 to 0.5 for the absolute liquidity ratio - the company is able to repay from 20% to half of its existing debt using its available cash.
- From 0.7 to 1 for urgent liquidity ratio - shows that the company, through the appropriate types of property, can cover from 70 to 100% of short-term obligations.
- From 1 and slightly higher for the total liquidity ratio - current assets in any case should allow covering existing short-term debts. However, if this value greatly exceeds 1, we can say that the company’s resources are being used poorly.
Depending on the type of assets available to the company, three liquidity options are distinguished, which are calculated when conducting financial analysis.
Liquidity is the ability of an enterprise to repay its obligations both in the short and long term. Liquidity also refers to the ability and speed of working capital resources to turn into cash. This indicator is important for enterprises that use various types of loans, loans, deferred payments, etc.
What is current ratio
Current ratio (CR – current ratio) is a relative indicator that assesses the organization’s ability to repay short-term (current) obligations exclusively from current assets (working capital).
This indicator is also called coverage ratio And working capital ratio.
This ratio is necessary to correctly assess the company’s capabilities related to the repayment of borrowed funds. As a financial instrument, it helps to correctly formulate the amount of liabilities based on the volume of working capital, which is called “current assets” in the balance sheet.
From the point of view of analyzing the organization’s activities, the liquidity ratio reflects the solvency of the enterprise in the short term(period up to 12 months) – the higher the indicator value, the better the organization’s solvency.
Too high values of the ratio may indicate an imbalance of the company’s funds (too large amount in working capital).
Current ratio: balance calculation formula
Formula
To quantitatively measure the liquidity ratio, the following formula is required:
K lt = OK/TO,
where K lt is the liquidity ratio,
OK – the amount of working capital,
TO – the amount of current liabilities (with a repayment period within a year).
By balance
All data necessary to calculate the liquidity ratio is presented in the organization's balance sheet. Quantitative measurement of the indicator is carried out on the following lines of the balance sheet:
- line 1200 “Total about section II”
- lines 1510, 1520, 1550.
The balance sheet liquidity ratio is calculated once per period (year).
The calculation formula is as follows:
K lt =s. 1200 / (p. 1510 + p. 1520 + p. 1550),
where K tl – coefficient;
With. 1200 = s. 1210 + p. 1220 + s. 1230 + s. 1240 + p.1250 + p.1260;
With. 1510 – “Borrowed funds”;
With. 1520 – “Accounts payable”;
With. 1550 – “Other obligations”.
Line 1200 indicates the total amount of working capital, which includes raw materials, materials in inventories, cash in accounts receivable, cash in cash and non-cash form, short-term financial liabilities and others.
Lines 1510, 1520 and 1550 relate to section V “Short-term liabilities”, that is, their maturity period is no more than 12 months. In this section there is also a line “Deferred income”, but it does not affect liquidity and is not taken into account.
The formula can be written according to the degree of liquidity of current assets and the urgency of repayment of liabilities:
K lt =Ak1+Ak2+Ak3/(Pa1+Pa2),
A1 – lines 1240 and 1250 – highly liquid assets;
A2 – line 1260 – medium-liquid assets;
A3 – lines 1210, 1220 and 1230 – low-liquid assets.
The higher the liquidity of current assets, the faster they can turn into cash.
P1 – 1520 – extremely urgent obligations;
P2 – 1510 and 1550 – current liabilities (short-term accounts payable).
Standard value of current ratio
Data on standard values are determined according to methodological guidelines that underlie the financial analysis of enterprises.
A normal liquidity ratio is considered to be in the range from one and a half to two and a half.
For most industries, a value less than one indicates existing problems with covering short-term debts.
In the spheres retail or food service coefficient equal to one will be the norm, since these industries are characterized by a high percentage of short-term loans.
For industrial enterprises with a long production cycle, the normal value of the indicator will be at the level 3 and above, since such enterprises have a large amount of inventory and work in progress.
Video - what value of the current liquidity ratio can be considered the norm: