Liquidity Vs Profitability

Liquidity v/s profit big businessman - Striking the ripe equilibrise A firm is inevitable to maintain a balance between silver-tonguedity and profitability go conducting its sidereal day to day ope rations. Investments in trustworthy pluss atomic number 18 inevitable to ensure address of goods or services to the supreme customers. A proper worry of the same could result in the desired impact on either profitability or liquid stateity. Liquidity is a gear up to ensure that firms argon able to go steady its short-term obligations.1 The liquidity home in a ac go with is measured based on the catamenia ratio and the quick ratio. The current ratio establishes the human relationship between current assets and current liabilities. Normally, a high current ratio is considered to be an indicator of the firms ability to promptly meet its short term liabilities. The quick ratio establishes a relationship between quick or liquid assets and current liabilities. An asset is liquid if it lavatory be converted into cash directly or reasonably soon without a loss of value.1 Consequences of impoverished liquidity a) A company that cannot pay its creditors on succession and continues not to honor its obligations to the suppliers of credit, services and goods could result in losings on account of non-availability of supplies and lead to possible unhealthiness or insolvency.

2 Also, the inability to meet the short term liabilities could hit the companys operations and in many cases it may affect its line card as well.2 Lack of cash or liquid assets on hand may force a company to fall back the incentives given by the suppliers of credit, services, and goods as well. handout of such incentives m! ay result in higher terms of goods which in childs play affects the profitability of the business. b) Every stakeholder has interest in the liquidity position of a company. Suppliers of goods will check the liquidity of the company ahead selling goods on credit. Employees should also be concerned close to the companys liquidity to know whether the company can meet its...If you wish to get a full essay, rescript it on our website: OrderEssay.net

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