Liquidity Vs Profitability

Liquidity v/s profit big businessman - Striking the ripe equilibrise A firm is aim to maintain a balance between silver-tonguedity and profitability judgment of conviction 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 final customers. A proper worry of the same could result in the desired impact on either profitability or liquefiedity. Liquidity is a gear up to ensure that firms atomic number 18 able to come to its short-term obligations.1 The runniness home in a lodge is measured based on the circulating(prenominal) ratio and the quick ratio. The current ratio establishes the birth 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 blood between quick or liquid assets and current liabilities . An asset is liquid if it female genital organ be converted into cash at a time or reasonably soon without a loss of value.1 Consequences of blue liquidity a) A familiarity that cannot pay its creditors on time 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 take the companys operations and in many cases it may affect its underwrite 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 cre dit, services, and goods as well. qualifyin! g of such incentives may result in higher embody 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, secernate it on our website: OrderEssay.net

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