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Short-Term Liquidity

2010/12/31 14:15:00 69

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What is short-term debt paying ability?

Short term solvency is the ability of enterprises to repay current liabilities. The strength of short-term solvency depends on the liquidity of current assets.

Assets

The speed of conversion into cash.

The liquidity of the current assets of enterprises is strong, and the corresponding short-term debt paying ability is strong.

Therefore, the short-term solvency is usually measured by working capital, liquidity ratio, quick ratio and cash ratio.

Factors affecting short term solvency

Short term solvency is affected by many factors, including industry characteristics, business environment, production cycle, asset structure, and utilization efficiency of liquid assets.

It is difficult to evaluate objectively the short-term debt paying ability of a company based on a single index.

Therefore, when analyzing the short-term debt paying ability, we should dynamically evaluate the trend of changes in terms of indicators. On the other hand, we should make a horizontal comparative analysis of the average level of the contract industry.

At the same time, budget comparative analysis should be carried out to find out the gap between actual and budgetary objectives, explore the causes and solve the problems.

Some factors that are not reflected in the financial statements will also be discussed.

Influence

Short term solvency, even

Effect

Quite large.

The factors that increase solvency include the availability of bank loan indicators, long-term assets ready for quick liquidation and reputation for solvency.

The factors that reduce solvency are: non recorded contingent liabilities, contingent liabilities caused by guarantee liability, etc.

The users of financial statements know more about this situation and are good at making the right judgement.