Liquidity and solvency ratios
Liquidity ratio
The liquidity ratio of a company refers to the company's ability to quickly convert its assets into cash in order to meet short-term obligations. In other words, it is a measure of how easily the company can pay its bills and other debts without causing financial problems.
Liquidity ratio assessment:
Unsatisfactory (<0.5)
The company's ability to meet short-term obligations is very low. This indicates serious financial problems and a critical lack of liquid funds.
Weak (0.5–0.99)
The company struggles to cover short-term obligations, and its financial situation may be considered uncertain. There is a need to improve liquidity.
Satisfactory (1–1.49)
The company has acceptable liquidity and is able to handle current obligations, but has little reserve for unforeseen expenses.
Good (1.5–2)
The company has good liquidity and is well prepared to handle short-term obligations, and also has some ability to deal with unforeseen financial needs.
Very good (>2)
The company has excellent liquidity, indicating strong financial health and significant ability to meet both expected and unexpected short-term financial obligations.
Capital ratio
The capital ratio from a financial perspective refers to the financial stability of a company and its ability to cover long-term obligations. It is a measure of how well the company can withstand financial shocks and how well it is prepared to handle long-term obligations. A high capital ratio indicates that the company has a healthy balance between equity and debt, providing a solid financial foundation and increasing security for investors and creditors.
Capital ratio assessment:
Unsatisfactory (<3%)
The company's capital ratio is very low, indicating high risk and a weak financial position. The company is mostly financed by debt.
Weak (3–9%)
The company's capital ratio is below average, showing moderate to high levels of debt. This may be a sign of financial uncertainty.
Satisfactory (10–17%)
The company has an acceptable capital ratio, with a reasonable balance between equity and debt.
Good (18–40%)
The company has a good capital ratio, indicating a strong and stable financial position with a healthy balance between equity and debt.
Very good (>40%)
The company has an excellent capital ratio.