The primary step towards evaluating receivables’ liquidity is implementing the current ratio, which stands for the working capital. The current ratio measures a company’s liquidity, and it can be easily measured by dividing its existing assets by its current liabilities. This term signifies current assets or liabilities consumed in the form of assets and paid in the form of liabilities within less than a year (Mueller, 2021). The current ratio is used to provide an entity’s ability to repay its liabilities (debt and payable) with its assets (cash, inventory, and receivables).
Additionally, liquidity can be calculated by quick ratio implementation. This type of ratio is similar to the current one except for the inventory since it is compared to the other assets such as cash or short-term receivables. It can be stated that inventory is not liquid enough. A ratio value of more than one is usually considered good for liquidity reasons, but this is industry-dependent. The final step towards calculating liquidity is the operating cash flow ratio (Mueller, 2021). It measures the extent to which current liabilities are covered by the cash flow from the company’s business activities. The operating cash flow ratio is a measure of short-term liquidity by calculating how often a company can repay its current debt with cash received during the same period.
The term ‘data analysis refers to the process of reviewing data records to draw conclusions about the information contained therein. Moreover, it presumes creating statistics of different kinds, which can be helpful in boosting a company’s evaluation process since the numbers can be compared (Mueller, 2021). Besides, data analysis helps to interpret factual results, which further helps eliminate drawbacks and focus more on strengths.
Reference
Mueller, J. (2021). Financial liquidity. Investopedia. Web.