When measuring company performance using liquidity, the higher the value, the better the performance. The reason is, when a company has a high level of liquidity, the opportunity to get support from various parties is also increasingly wide open. Financial institutions, suppliers, to creditors certainly tend to choose companies with high liquidity to ‘save’ their funds. So, the liquidity owned by this company plays a very important role in showing its performance and being an investment target for investors so that its management can certainly be following procedures. That is why you should use Xero Silverwater.
The level of liquidity owned by the company can also be used as a reference to the level of flexibility of the company. This level of company flexibility can then be taken into consideration in investment cooperation and other businesses that can be profitable. When liquidity is deemed unsatisfactory, the company can make this information as evidence of the need to improve its performance so far. The company is also able to analyze what business decisions are deemed unnecessary or detrimental to other business decisions that are more profitable. The company management has also become more able to check the efficiency of working capital.
After discussing the role of liquidity, the next thing to understand is about the liquidity component. The liquidity component is divided into three, namely, density, depth, and resilience. For the first component, density describes the distance or gap from the normal price of a product with the agreed price. So, through liquidity, the company can explain the agreement on the transaction of a product that is used. Measurement of the level of company liquidity can be done by comparing components on the balance sheet. These components include the number of current assets and current liabilities or short-term debt. The process of measuring liquidity can also be carried out periodically in several accounting periods to make it visible.
What is meant by the current ratio is the company’s ability to use current assets to pay liabilities and current debt. By measuring this liquidity ratio, the company can find out the number of current assets that can be used to pay off short-term liabilities.