Key Management Ratios, 4th Edition

8

Cash flow cycle

Corporate liquidity

• The cash cycle
• Measures of liquidity – long and short analysis

Every branch of knowledge has its fundamental discovery. In mechanics it is the wheel, in science fire, in politics the vote. Similarly, in economics, in the whole commercial side of man’s social existence, money is the essential invention on which all the rest is based.

SIR GEOFFREY CROWTHER (1907–1972)

Corporate liquidity

A company must maintain sufficient cash resources to pay all legitimate bills as they arise. A company that cannot do so has run out of liquidity and is in a very serious financial condition. Ironically, this is so ...