liquidity

Liquidity ( Latin liquidus , "liquid") is in the economy , the ability of economic agents , any time their payment obligations of debt to be able to fully meet or property of Business Objects at any time into cash to be. Liquidity therefore also refers to the availability of sufficient means of payment .

General

Economic subjects are private households , companies and the state and its subdivisions. They all have to take care of their liquidity once they become debtors and thereby have debts. Liquidity is the result of the private liquidity calculation ( private individuals , private households), in companies the liquidity calculation is called the cash flow or cash flow calculation , in public households the financial calculation . To maintain liquidity, they have economic objects such as assets (such as cash in hand , bank balances , receivables , fixed assets ) or unused loan commitments . Business objects are liquid if they can be sold at any time in an active market . Liquidity is therefore a property of assets and characterizes their proximity to money, i.e. the possibility of using them as a means of payment either directly or after conversion .

Business administration

In business administration , liquidity is the ability of an economic subject to be able to settle its due liabilities at any time (on time) and without restriction. In addition to profitability , security , independence and profit maximization, liquidity is one of the most important corporate goals .

In companies, liquidity consists of three sub-aspects, solvency , liquidity reserve and liquidity . The solvency is guaranteed if the debtor can always meet its payment obligations in full. Any asset - including unused loan commitments - fulfills the function of a liquidity reserve ( cash and cash equivalents ) if they can be liquidated at short notice and lead to additional income; Liquidity is a property of liquidity reserves.

Depending on the period in which the obligations become due , a distinction is made between short-term (less than 1 year), medium-term (1 to 5 years) and long-term obligations (over 5 years). However, this delimitation is fluid and basically results from the Commercial Code (HGB), according to which liabilities up to one year according to Section 268 (5) sentence 1 HGB and liabilities with a remaining term of more than 5 years according to Section 285 No. 1 a HGB must be shown in the appendix .

In addition to an insufficient equity ratio or over-indebtedness, a lack of liquidity is the most common cause of bankruptcy in companies . A lack of liquidity often comes as a surprise, especially if the company has insufficient liquidity planning . Occasionally the lack of liquidity is kept secret by the management of the company for a while in order to “save” the company. In this way, only the most important obligations are settled, discount options not used, credit lines overdrawn, no sales tax paid, assets (below their value) sold ( emergency sale ) and the employees no longer receive their wages on time. However, due to higher costs, this policy leads to an increasingly poor credit rating , which in turn jeopardizes liquidity in the future and can ultimately lead to illiquidity (insolvency).

On the other hand, excessively high liquidity results in a loss of profitability. Anyone who hoards means of payment too abundantly, or not or only poorly invests, can i. d. Usually, you can easily meet all payment obligations, but at least do without the usual interest and lose part of your assets due to inflation .

Static liquidity

With the help of the liquidity level , a company is examined with regard to its ability to meet all payment obligations on time. Similar to the investment cover , items on the asset side are compared with items on the capital side (horizontal balance sheet structure analysis ).

Dynamic liquidity

Based on the dynamic liquidity, it can be estimated how the payment obligations arising in this period can be met with the available means of payment and estimated sales over a period (usually one to three months).

• ${\displaystyle {\text{Dynamische Liquidität}}={\frac {({\text{Zahlungsmittel}}+{\text{Forderungen}}+{\text{geschätzte Umsätze}})}{\text{kurzfristige Verbindlichkeiten}}}}$

Period liquidity

This key figure results from the comparison of necessary outgoing payments and incoming payments to be expected for the relevant period:

• ${\displaystyle {\text{Periodenliquidität}}={\frac {\text{Zahlungsausgänge}}{\text{erwartete Zahlungseingänge}}}}$

Market liquidity

The market liquidity requires

• Market width ( English market breadth ) with low transaction costs in the form of a low bid-ask spread ,
• Market depth ( English market depth ) with low transaction costs for large market volume and
• Resilience ( English market resiliancy ) by deviations from the intrinsic value of a trading object to be corrected quickly.

A liquid market is characterized by a high market depth, market breadth and the ability to recover.

A liquid market securities-law according to § 2 para. 23 WpHG a market for a financial instrument or for a category of financial instruments to the continuously buy- or selling ready available willing buyers or sellers and taking into account the specific market structures of the relevant financial instrument or the relevant Category of financial instruments is assessed according to the following criteria:

• Average frequency and volume of transactions under a certain range of market conditions, taking into account the nature and life cycle of financial products within the category of financial instruments;
• Number and type of market participants , including the ratio of market participants to the financial instruments traded in relation to a particular financial instrument and
• average spread ( bid-ask spread ), if available.

Market liquidity is a criterion for fulfilling market functions .

In accounting law, an active market is a liquid market with homogeneous products and prices accessible to the public ( IAS 36.5).

Economics

Liquidity of fixed assets

In economics , more precisely in microeconomics , the quality of an economic subject is considered to convert his assets into money. Depending on the ease with which an asset can be converted into money , one speaks of different liquidity . It is z. B. to note that liquidation costs may also arise. Ultimately, this consideration reflects the above. Business management with the different degrees of liquidity, but now all assets, including long-term financial assets, are assessed.

For example, a property has a relatively high value retention, but the costs of converting it into liquid funds are relatively high. It should also be noted that the loss of value on invested assets is greater, the more specific the investment is. If, for example, a steel furnace has to be sold that was built five years ago for € 20 million because steel production is no longer profitable due to changed framework conditions, the furnace has at most a scrap value , whereby this can be exceeded by the demolition costs . An old, beautiful factory building might be less specific in that an alternative use would also be possible. It could e.g. B. converted into lofts, ie developed for residential purposes.

Hence the well economically relevant finding that the value of assets to a going concern basis is usually much higher than busting values . In a company valuation , there are two different valuation approaches.

Liquidity (free movement of capital)

The importance of this liquidity analysis in the Argentina crisis becomes clear : If many people maintain a high level of liquidity in the form of central bank money or daily deposits with credit institutions that can be quickly transferred into other currencies, the free liquidity balance of the commercial banks is high. They can thus use their domestic credit creation leeway, largely unaffected by the central bank , or transfer the liquidity into a foreign currency, which damages the national currency if it is freely convertible . The central bank or the legislature will therefore endeavor to limit the convertibility of the currency to a large extent in order to reduce liquidity to the normal level and thereby keep the external value of the currency as stable as possible.

Liquidity (money supply)

Macroeconomically, liquidity describes the amount of money available , whereby , or can be meant. The money supply is influenced by the economy , in particular by the speed of money circulation and the monetary policy of the central bank . (Parameter L: Liquidity in the IS-LM model ) ${\displaystyle M1}$ ${\displaystyle M2}$ ${\displaystyle M3}$

See also

• Liquidity gap analysis
• Liquidity level
• Liquidity risk
• Market liquidity risk
• Payment terms
• Payment history

literature

• Klaus-Dieter Däumler: Business finance. 8th completely revised edition. Verlag Neue Wirtschafts-Briefe, Herne et al. 2002, ISBN 3-482-56458-2 ( business administration in study and practice ).
• Jochen Drukarczyk: Financing. An introduction. 9th revised edition. Lucius & Lucius, Stuttgart 2003, ISBN 3-8282-0120-2 ( UTB for science - university pocket books - business administration, economics = basic knowledge of economics. Business administration )
• Guido Eilenberger : Corporate Finance. Introduction to investment and finance, financial policy and corporate financial management. 7th fully revised and expanded edition. Oldenbourg, Munich et al. 2003, ISBN 3-486-25535-5 ( textbooks and handbooks on money, the stock exchange, banking and insurance ).
• Fritz-Ulrich Jahrmann: Financing. Presentation, control questions, cases and solutions. 5th substantially revised edition. Verlag Neue Wirtschafts-Briefe, Herne et al. 2003, ISBN 3-482-56755-7 ( NWB study books economics ).
• Dieter Krimphove, Dagmar Tytko (Hrsg.): Praktiker Handbuch Unternehmensfinanzierung. Raising capital and rating for medium-sized companies. Schäffer-Poeschel, Stuttgart 2002, ISBN 3-7910-1950-3 .
• Hermann Lauer: Conditions Management. Design and enforce payment terms optimally. Verlag Wirtschaft und Finanz, Düsseldorf 1998, ISBN 3-87881-124-1 .
• Klaus Olfert: Financing. 15th updated edition. NWB, Herne 2011, ISBN 978-3-470-53495-4 ( compendium of practical business administration ).
• Louis Perridon , Manfred Steiner : Finance of the company. 15th improved edition. Vahlen, Munich 2009, ISBN 978-3-8006-3679-2 ( Vahlen's handbooks of economics and social sciences ).
• W. Stützel: Liquidity. In: Concise dictionary of the social sciences. Vandenhoeck & Ruprecht et al., Göttingen et al. 1959, pp. 622–629.
• E. Witte: Liquidity. In: Wolfgang Gerke , M. Steiner (Hrsg.): Concise dictionary of banking and finance. 2nd Edition. Schäffer-Poeschel, Stuttgart 1995, ISBN 3-7910-8042-3 , Sp. 1381-1387 ( Encyclopedia of Business Administration 6).
• Günter Wöhe , Jürgen Bilstein: Basics of corporate financing. 9th revised and expanded edition. Vahlen, Munich 2002, ISBN 3-8006-2823-6 ( textbooks for economics and law ).

Individual evidence

1. ↑ Wolfgang Stützel , Liquidität , in: Erwin von Beckerath et al. (Hrsg.), Handwörterbuch der Sozialwissenschaften, Volume 5, 1959, p. 622
2. ↑ Lutz Irgel (Ed.), Gabler's Wirtschaftswissen für Praktiker , 2004, p. 169
3. ↑ Edmund Heinen, The company's target system , 1966, p. 75
4. ↑ Edmund Heinen , The company's target system , 1966, p. 76
5. ^ Albert S. Kyle, Continuous Auctions and Insider Trading , in: Econometrica vol. 53 (6), 1985, p. 1317
6. ↑ Alexander Kempf, Wertpapierliquidität und Wertpapierpreise , 1999, p. 18 f.

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