Understand what liquidity is and its role in business

“Liquidity is an important aspect to understand for everyone involved in the world of finance, both individuals and companies. By understanding the benefits, you can make better financial decisions.”

In the world of finance, liquidity is related to the ability to face financial crises or emerging investment opportunities. Good liquidity can help a company meet short-term obligations such as business debts, dividends, taxes and other current assets.

There are many things that affect liquidity, one of which is tax payments. Tax payments that are not timely can have a negative impact on a company’s liquidity.

Therefore, companies need to manage their tax payments well so as not to disrupt the company’s liquidity. You can take advantage of the CIMB Niaga Tax Payment service which is connected directly to the government’s State Revenue Module system, so that the tax payment process can be carried out more effectively and efficiently.

What is Liquidity?

For people who are involved in the business world, they are certainly familiar with liquidity. This term refers to the ability of an asset to be converted into cash quickly without affecting its value.

In emergency situations, having assets that can be quickly converted into cash will help overcome financial problems. The easier it is for an asset to be sold or exchanged for cash, the higher the level of liquidity.

An example of a liquid asset is cash, while property and other physical assets usually have a lower level of liquidity because they take time to sell.

A company with strong liquidity tends to be better able to deal with unexpected financial challenges, such as a decrease in revenue or unexpected expenses. On the other hand, lack of liquidity can lead to financial difficulties and even bankruptcy.

The Importance of Liquidity in Business

Liquidity has several important functions for companies, including:

  • Helps meet short-term obligations

Liquidity plays an important role in business because it can help a company meet short-term obligations, such as business debts and taxes.

If it does not have a sufficient level of liquidity , the company cannot fulfill its obligations which can lead to bankruptcy.

  • Increasing attractiveness for investors

Liquidity is one of the factors investors consider when making investment decisions. Because, investing in liquid assets has the certainty that these assets can be sold quickly and easily.

This is important for investors who need cash quickly, for example for urgent needs or for business purposes.

  • Helps manage cash flow 

A good level of liquidity will help the company be more efficient in managing its cash flow. This is because liquid companies have more cash and current assets that can be used to meet their short-term obligations.

Types of Liquidity

There are several types of liquidity that you need to know, some of which are as follows:

  • Current Liquidity (Current Liquidity)

Current liquidity is the ability to meet short-term obligations using the most liquid assets, such as cash, cash equivalents, and accounts receivable that will be received soon.

Smooth liquidity is an indicator of a company’s financial health, because it can help avoid financial difficulties caused by obligations that must be resolved immediately.

  • Operational Liquidity ( Operating Liquidity )

Operating liquidity covers a wider range of assets than current liquidity . This includes assets that are more difficult to convert into cash in a short time, such as inventory and fixed assets.

This type of liquidity reflects the company’s ability to carry out the company’s operational activities without experiencing significant financial obstacles.

  • Investment Liquidity ( Investment Liquidity )

This type of liquidity includes assets that are difficult to convert into cash without experiencing a significant loss in value. Examples are long-term investments such as shares, bonds or property.

Even though it is not immediately liquid, investment liquidity becomes relevant when your company decides to sell these assets to meet financial or other investment needs.

  • Overall Liquidity ( Total Liquidity )

Finally, there is total liquidity which is a comprehensive picture of a company’s ability to convert all its assets into cash. This includes current liquidity , operating liquidity, and investment liquidity . 

Evaluation of overall liquidity is important in long-term financial planning, especially in emergency situations or when a company is considering business expansion or restructuring.

How to Measure Liquidity

The ability to properly measure liquidity is critical to ensuring business continuity and avoiding serious financial problems. Company liquidity can be measured using various financial ratios, such as:

  • Current Ratio ( Current Ratio )

It measures a company’s ability to meet short-term obligations using assets that can be converted into cash in a short time.

Current assets that are easily converted into cash include cash, receivables and stock. The basic formula for calculating the current ratio is to divide current assets by current liabilities. 

The higher the current ratio, the better the level of liquidity you have.

  • Quick Ratio ( Quick Ratio )

This ratio is similar to the current ratio, but does not include stock in the calculation. To calculate the quick ratio, you need to subtract current assets from stock first. After that, divide it by current liabilities.

The calculation results of the quick ratio provide an overview of the company’s ability to fulfill its obligations without having to sell its stock.

  • Cash Ratio ( Cash ratio ) 

The cash ratio compares the amount of cash and cash equivalents with the amount of current liabilities. The higher the cash ratio, the more liquid a company will be. The cash ratio is calculated by dividing total cash and cash equivalents by total current liabilities.

By knowing how to measure liquidity, your company can achieve long-term financial success. This involves good financial planning, debt management as well as paying short-term obligations such as paying taxes on time.

CIMB Niaga Tax Payment Services can be a practical solution for paying your company taxes. This service is directly integrated with the government’s State Revenue Module (MPN) system. 

CIMB Niaga provides various attractive features that will make it easier for corporate customers to pay tax obligations, such as:

  1. Serves various types of tax payments and state revenue transactions.
  2. Excise (export and import)
  3. Non-Tax State Revenue (PNPB)
  4. You will immediately get a State Revenue Transaction Number (NTPN) after the transaction is complete
  5. Tax payments can be made directly without having to have a Billing ID
  6. Bulk payment options using uploaded files
  7. The payment instruction time can be set immediately or a future date 
  8. Proof of Tax Receipt (BPN) will be sent automatically to the customer’s email.

Immediately open a CIMB Niaga account and enjoy the convenience of paying taxes with the Tax Payment cash management service. For further terms and conditions, read here .

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