02 01

Financial planning liquidity

financial planning liquidity

Financial Planning Resources Advice Balance The - and

Understanding Financial Liquidity - Investopedia

financial planning liquidity

financial planning liquidity Formulating a Contingency Funding Plan to Manage Liquidity.

Liquidity may be an appealing characteristic for an investment, but a growing base of research is finding that illiquidity may be even more desirable. Ironically, demand for illiquid investments is so low, that they appear to carry persistent excess return premiums. This view has been popularized in recent years by people including David Swensen of Yale Endowment, who racked up a whopping 13.9% annual return for the past 20 years in large part by relying heavily on illiquid investments.

Of course, the first caveat to investing in illiquid assets is that it is only appropriate for the portion of a portfolio that the investor can afford to place into illiquid holdings. Yet the more significant (albeit more nuanced) danger is that the return premium is only beneficial for an otherwise sound investment. Owing a bad investment that is also illiquid just compounds the problem by locking the investor in.

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financial planning liquidity Formulating a Contingency Funding Plan to Manage Liquidity.

Liquidity planning

  • BusinessPlanner - your professional planning and controlling tool.
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Recognising potential

  • RatingBeratung / Rating advisory service - look at your company in a new light.
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  • Industry Check - pinpoint your position among the competition.
With an individual financial plan, you obtain an overview of future changes in liquidity and investment options. This is illustrated in the chart below.

Financial Planning

As part of the financial planning process, we provide a detailed plan for the coming year and a rough overview for the next two to three years. We follow the principle of being as realistic as possible and as detailed as necessary. This process makes it easier to recognize problems early and to take the right corrective measures promptly. It also allows us to compare the target situation with the actual situation on an ongoing basis.

Liquidity planning means nothing less than ensuring that a company remains solvent at all times for the foreseeable future. Liquidity planning also gives you an overview of how much free liquidity can be managed in the short, medium, and long term.

Tools

Business Easy Overdraft Limit

Do you need more flexibility for payment orders?

Overdrafts are permitted with a Business Easy Overdraft limit, so you can easily avoid any liquidity bottlenecks.

Example of a combined Finance- and Liquidityplan including a Cash Flow Summary A) In a Excel Spreadsheet B) In our Treasury Software   A Financeplan is primary intended for a strategic longterm period  (more than a year) and also for a operational short-term period ->  Liquidity Plan. It is a basic requirement for the economical controlling  of the liquidity-risk! The financeplan is defined as a companies  forecast about the expected revenues and expenses in a specific  period, completed by the movement of payables and loan inventory. However, to obtain a best possible fx-hedging, natural or by  derivatives, such a finance plan can be used perfectly also as a direct fx-liquidity plan if this plan is segregated by currency!
Cash is the most liquid asset, while real estate, fine art and collectibles are all relatively illiquid.

Accounting liquidity measures the ease with which an individual or company can meet their financial obligations with the liquid assets available to them. There are several ratios that express accounting liquidity.

BREAKING DOWN 'Liquidity'

Cash is considered the standard for liquidity because it can most quickly and easily be converted into other assets. If a person wants a $1,000 refrigerator, cash is the asset that can most easily be used to obtain it. If that person has no cash, but a rare book collection that has been appraised at $1,000, they are unlikely to find someone willing to trade them the refrigerator for their collection. Instead, they will have to sell the collection and use the cash to purchase the refrigerator. That may be fine if the person can wait months or years to make the purchase, but it could present a problem if the person only had a few days. They may have to sell the books at a discount, instead of waiting for a buyer who was willing to pay the full value.

The stock market, on the other hand, is characterized by higher market liquidity. If an exchange has a high volume of trade that is not dominated by selling, the price a buyer offers per share (the bid price) and the price the seller is willing to accept (the ask price) will be fairly close to each other. Investors, then, will not have to give up unrealized gains for a quick sale. When the spread between the bid and ask prices grows, the market becomes more illiquid. Markets for real estate are pretty much inherently less liquid than stock markets. Even by the standard of real estate markets, however, a buyer's market is relatively illiquid, since buyers can demand steep discounts from sellers who want to offload their properties quickly.

Accounting Liquidity

For an entity, such as a person or a company, accounting liquidity is a measure of their ability to pay off debts as they come due, that is, to have access to their money when they need it. In the example above, the rare book collector's assets are relatively illiquid, and would probably not be worth their full value of $

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Current Ratio

The current ratio is the simplest and least strict ratio. Current assets are those that can reasonably be converted to cash in one year.

Current Ratio = Current Assets / Current Liabilities

Acid-Test or Quick Ratio 

The acid-test or quick ratio is slightly more strict. It excludes inventories and other current assets, which are not as liquid as cash and cash equivalents, accounts receivable and short-term investments.

Acid-Test Ratio = (Cash and Cash Equivalents + Short-Term Investments + Accounts Receivable) / Current Liabilities

A variation of the acid-test ratio simply subtracts inventory from current assets, making it a bit more generous than the version listed above:

Acid-Test Ratio (Var) = (Current Assets - Inventories) / Current Liabilities

Cash Ratio

The cash ratio is the most exacting of the liquidity ratios, excluding accounts receivable as well as inventories and other current assets.

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