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Journal number 1 ∘ Besik Bolkvadze

(Expanded Summary) 

The paper refers to the inevitability of utilization of companies’ liquidity instruments in business sector. The necessity of envisaging of specific nuances by the financial managers and analysts is also highlighted that will raise analytical “culture” level and effectiveness of economic activity assessment of business entities. 

 Key Words: Business entity, Financial analysis, Liquidity analysis, Financial ratio, Solvency. 

The paper considers one of the topic issues of the  functioning of business entities as liquidity position and its quantitative and qualitative charasterictics. As it’s well known liquidity level of any company is the main analytical tool in its operation. That’ s why it is important for financial managers and analytists of companies to evaluate and assess of the liquidity paramiters, ratios and aspects impacted on their liquidity level as well as take into account all the factors related to the overall liqudity position. In this regard the article concerns the nuances which are the utmost impartance for efficient functioning companies as follows: to calculate and evaluate the liqudity “cushion” and the liquidity ratios: the current ration, the quick ratio, the cash ratio; to take into consideration companies with “slow” operation when interprete the liquidity ratios meanings; to filtrate the indices of cash assets, reseivables and inventories by deducting of nonliquid assets for proper assessment; to forseen the fact that every companies related to any sector and subsector of the economy have different level of liquidity; to envisage the market conjuncture and inventory fluctuation and their prices as well as peculiarities of current liabilitiesin in the analysis; to take into consideration that the liquidity level also depends on the size and scale of business activities; to calculate properly and observe liqudity ratios meanings and normative levels; to evaluate diapasonic deviation of liqudity coefficients; not to computate and interprete the liqudity ratios roughly as their levels are dependent on vearious factors such as sector specificity, strusture of current assets and liabilities, stability level of business entity, specific character of sales etc.  

It should be underlined that calculation of liquidity ratios and monitoring of liquidity position should be realized in the framework of “inside” and “outside” financial analysis. The level of utilization of analytical (liquidity) instruments is limited in practice because of the following factors: superficial attitude towards the analytical instruments from bisiness founders and managers, narrow cicle of proffesional financial analysts, low level of financial accountability, lack of development-oriented corporate finance, limitation within the processing of financial report.

Upgrading of liquidity position is one of the important short-term financial objectives of any business entity bacause feasible liqudity level and neutralization and avoiding of bankruptcy much depends on it. Hence it is crucial necessary to oserve and monitor the liquidity level of a company. Herewith it’s utmost importance not to calculate and interpret liquidity ratios isolatedly but to asses ratios in combination with other financial (financing, profitability, efficiency, market and cash flow) ratios in order to get general financial “picture”.

Besides the abovementioned in order to raise the role and significance of the liquidity analysis and assessment system it is important to take the following steps from the business entities: to work out and implement analytical financial instruments and relevand software programs in the operation; to base financial decisions on analytical methods and approaches; to prepare corresponding analytical tools connecting with financial institutes in credit solvency assessment process; to create an effective mechanism of financial benchmarking system from the government side for business entities evaluation.