Liquidity and Solvency Analysis Liquidity and solvency are the signal indicators in which the financial condition of the enterprise is manifested. Most
authors, depending on the characterized subject of analysis, allocate the following types of liquidity: assets, balance sheet, enterprise. Let us consider
each of these categories in more detail.The liquidity of assets of an enterprise is the ability of assets to transform into cash, and the degree of liquidity
is determined by the duration of the period during which the transformation can be carried out.The less time it takes for this type of asset to acquire
monetary form, the higher its liquidity.Balance sheet liquidity is the ability of a business entity to turn assets into cash and repay its payment
obligations, or, more precisely, it is the degree of coverage of the company’s debt obligations by its assets, the term of which transformation into cash
corresponds to the term of repayment of payment obligations.The enterprise’s liquidity is its ability to pay its liabilities in due time and in full.
The concept of solvency is close to liquidity, but it is not always correct to talk about the identity of these definitions.Solvency is the ability of an
enterprise to make timely payments on its term obligations.Liquidity is a broader concept than solvency. Liquidity characterizes both the current state
of settlements and the future. An enterprise may be solvent on the reporting date but have unfavorable opportunities in the future, and vice
versa.Balance sheet liquidity analysis consists in comparing assets grouped by degree of decreasing liquidity with liabilities grouped by degree of
maturity.The first group (A1) includes liquid assets, such as cash and short-term financial investments.The second group (A2) includes quickly
realizable assets: finished goods, shipping goods, and accounts receivable. The liquidity of this group of current assets depends on the timeliness of
shipment of products, execution of bank documents, speed of payment document turnover in banks, on-demand for products, its competitiveness, the
solvency of buyers, forms of settlements, etc.The third group (A3) of slowly realizable assets includes production inventories, unfinished
production.The fourth group (А4) is hard-to-realize assets, which include fixed assets, intangible assets, long-term financial investments, unfinished construction.