Liquidity Vs Profitability

Liquidity v/s profit big man of affairs - Striking the ripe equilibrise A firm is infallible to maintain a balance between silver-tonguedity and profitability dapple conducting its sidereal day to day ope rations. Investments in trustworthy assets are inevitable to ensure address of goods or services to the ultimate customers. A proper worry of the same could result in the desired impact on either profitability or stillity. Liquidity is a gear up to ensure that firms are able to control its short-term obligations.1 The liquid home in a fel bustedship is measured based on the sure ratio and the quick ratio. The current ratio establishes the kin 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 consanguinity between quick or liquid assets and current liabilities. An asset is liquid if it bear be convert ed into cash right away or reasonably soon without a loss of value.1 Consequences of low liquidity a) A gild that cannot pay its creditors on clock and continues not to honor its obligations to the suppliers of credit, services and goods could result in losses 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 seclude the companys operations and in many cases it may affect its trace 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 may result in higher make up 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 concern ed close to the companys liquidity to know ! whether the company can meet its...If you wish to get a full essay, grade it on our website: OrderEssay.net

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