What is Liquidity Functions and Examples

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reshmaakther
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Joined: Mon Feb 20, 2023 6:57 am

What is Liquidity Functions and Examples

Post by reshmaakther »

Definition of Liquidity Has Grameds ever wondered what liquidity is and how to calculate it using ratios? Check out the following explanation so that Grameds can find out about how long the company can finance business operations and other benefits that Grameds will get.Before discussing liquidity further, Grameds needs to first understand the meaning of liquidity. Liquidity is the ability or power of a company to pay debt and short term obligations. Examples of short term debt are taxes, trade payables, dividends, and so on. However, there are also those who say that the definition of liquidity is the ability of individuals and companies to pay off debts or obligations with current assets. If the company does not have the power to pay off its obligations, it will be impossible for the company to be able to carry out operational activities the same as before.

In general each company has a different level of liquidity as shown in certain figures, such as the quick ratio, current ratio and cash ratio. The higher, the Pert Grameds that the company has a better Phone Number List performance also in carrying out its operational activities. With a high level, it can attract investors, for example financial institutions, creditors, and suppliers. The Role of Liquidity To run a business, there are several obligations that Grameds needs to fulfill. This obligation is the obligation to pay debts and also the obligation to finance all the operational needs of the company. These two obligations are known as liquidity. If a company is able to pay these obligations then it can be said that the company's liquidity is good, but if the company is unable to pay all of these costs then the company can be categorized as a company that is not good. Therein lies the important role of liquidity, by knowing the ability to pay of a company, the benchmark for the success of SMEs can be assessed.

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Companies can use the help of financial management software to get optimal business management. As a reference for the level of flexibility of a company in obtaining investment approval or other profitable business. A tool that can trigger companies to improve performance. As a benchmark for the company's ability to pay short term obligations. Can help management to check the efficiency of working capital. Assist companies in analyzing and interpreting financial position in the short term. Therefore, maintaining the level of liquidity is important because it can gain the trust of both internal and external parties. With a good level of liquidity, companies can pay employee salaries according to a predetermined date and easily obtain capital loans from investors, banks and other parties. Components in Liquidity Furthermore, what Grameds needs to know is an understanding of the liquidity component.
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