Liquidity Analysis

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Querist : Anonymous

Querist : Anonymous (Querist)

04 December 2009 I am doing project on Liquidity analysis through ratio & cash flow. can anybody help me. pls. tell me the procedure and the differance between working capital and liquidity management.
Hoping for reply.
thanks
Yours
Shaikh Aijaz

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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06 December 2009 The liquidity means capacity of making payments to liabilities.

Working capital means the amount of capital which you need to run your business. It does not include amount of capital invested in fixed assets.

Only cash required for expenses, cost of inventory and amount of sundry debtors less liabilities towards goods creditors and other creditors. With reference to the one particular period it is calculated. For example if you need 15 days material as stock, 2 months debtors (pay period from debtor is 2 months) and expenses of 1 month it means your gross working capital requirement is of 3.5 months. From this way; you have to deduct the current liabilities.

Liquidity management means to have that much cash in hand so that you can meet all your liabilities when they become due.

CA Rakhecha,
Surat

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