Degree of covering working capital requirement with net long-term financing as a measure of financial liquidity
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Appropriate measurement of the enterprise’s ability for the repayment of current liabilities is one of the bases for management decisions conditioning the enterprise’s functioning.The article presents the potential of estimating financial liquidity on the basis of degree of cover of working capital with net long-term financing. This indicator is a better criterion for the evaluation of the company’s operations because it combines managing the operating cycle with sources of its financing.Problems with financial liquidity are often an indication of mismanagement of de-mand for working capital (inventories, short-term receivables and payables) and/or the wrong selection of financing sources.
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