Treasury ratio

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The treasury is known as the fundamental part of the assets of a business entity. This also refers to the area of any company in which the main function is to organize and manage each and every one of the actions that are associated with the operations of the monetary flow or can also be the cash flow.

The cash ratio is recognized as the quantified link that exists between two magnitudes and that makes it possible to glimpse their proportion. En economía, el ratio se conoce como la vinculación cuantitativa entre dos fenómenos cualesquiera que desee y que nos posibilita vislumbrar un event específico de nivel de inversión, rentabilidad, etc.

To the concept of cash ratio Several definitions have already been given to you, but to understand what it is and how it works, a basic concept is needed to get started, the cash ratio is a link that enables us to measure the ability of a company to face a payment or a series of payments whose expiration is usually short-term. This specific ratio shows us the capacity of our business entity to pay those debts that are established with a maturity less than one accounting year, this with the debts and the amount available in favor of the company.

The cash ratio is one of the liquidity ratios. that they are more used to knowing the liquidity situation of a commercial entity, this means that it is; The opportunities that the company has to make short-term payments, as we have already mentioned, the liquidity ratios are three that we will mention below:

Immediate cash ratio or "availability ratio".

It is established by different advocates of economic theory and accounting theory as the quotient of the division of both amounts: "available" and "current liabilities".

Available current liabilities = availability index.

This ratio indicates that the company may or may not have the ability to deal with short-term debts, this only with its availability or cash.

Technical solvency ratio or "liquidity ratio".

It is also defined by the different lawyers of economic and accounting theory as the quotient resulting from the division of both quantities:

"Current assets" and "Current liabilities".

Current assets ÷ current liabilities = liquidity ratio. This ratio represents the capacity of a company to meet the payments that derive from the enforceability of current liabilities, this due to the charges caused by current assets. It is considered that the company does not have liquidity problems when the value of the liquidity index is approximately greater than or equal to 1.5 (? A 1.5), or less than or equal to 2 (? A 2).

In the event that the liquidity index indicates to be less than 1.5 (? A 1.5), the company is more likely to carry out a suspension of payments, which indicates very low liquidity to cover payments of less than one accounting year.

It is common to fall into the error of believing or estimating that with a liquidity ratio of 1 the short-term debts would be attended and paid without problems, this in spite of everything is a mistake, given that the difficulty of marketing all the short-term actions term, at the same time of the delinquency by the clients, they indicate that the working capital becomes positive and that for this same reason current assets are higher than current liabilities, this from a conservative point of view may be sufficient.

If the situation occurs in which the liquidity index is greater than 2, it could indicate that there are "Inactive current assets" which can directly affect profitability and generate losses.

Treasury ratio. Furthermore, it is defined by connoisseurs of economic and accounting theory as the sum of what is available plus what is achievable, this divided by current liabilities.

(“Available” + “realizable”) ÷ (current liabilities).

This is an indicator of the commercial entity's ability to combat short-term debts or less than one accounting year, for this, counting on current assets, it should also be noted that inventory stocks are not included. It should be noted that in order to consider that a company does not have liquidity problems, the value of the treasury ratio must be 1, this being anyway an approximate of the optimum for the operation of the company.

If the cash ratio is less than 1 (? A 1), the company runs financial risks, such as suspension of payments due to insufficient liquid assets available to cover the debt and / or its payments. If the opposite of the previous one occurs, in which the cash ratio is higher or much higher than 1, it is an indicator that there is an opportunity for an excess of liquid assets, which would cause a loss of profitability of the same assets.

The solvency ratio and the cash ratio

Both ratios are in charge of showing us the level of solvency that a company has to pay its debts, in summary; how easy it is for the company to pay what it owes on time and, therefore, not generate interest, all in a short term. There is a fundamental difference to understand that both fulfill a similar function, but in a different way. Regarding the meaning of “treasury ratio”, only short-term debts (less than one year) are considered, this is compared with the resources that the company has, liquid resources, or that may even be within a short term. With this we can see that the treasury ratio is concerned with measuring the solvency of the company to pay its debts in a more immediate period of time.

The fundamental difference between the two stands out in the solvency ratio, with its comparison of all the assets of the company with the liabilities, thus making a demonstration of the proportion that involves all the assets and rights of the company contrasting with the debts and obligations. this. The solvency ratio is by itself, an indicator that does not refer to the distinctions of short or long-term debts, nor does it distinguish between assets that are liquid and those that are not, it is a more general and less specific ratio than the treasury ratio, its function is similar but its efficiency is different.

How to correctly calculate the cash ratio?

Anyway, to carry out an operation like this is basically a matter of arithmetic knowledge, despite everything, we must not stop taking into account the knowledge we have in economic and accounting theory, a lot of data is needed to arrive at this simple operation .

The formula we would use to calculate the cash ratio is as follows:

Available + Realizable ÷ Current Liabilities = Cash Ratio.

Don't understand these concepts or terms?

As we mentioned previously, even when you have been aware of economic and accounting theory, the concepts are easily forgotten, for that we leave you here the simplified meaning of each of the concepts present in the company's balance sheet:

• It is money, what we know and call the company's “liquid”.
• They are the goods and rights that are quickly transformed into money, it is understood for this reason that we speak of debtors, investments and clients, all in the short term.
• Current liabilities. They are obligations and debts that have short-term maturity.

Uno de los principales inconvenientes que puede tener una entidad mercantil es la falta de solvencia para cubrir las deudas, una compañía que no es capaz de mantener la estabilidad financiera es la misma que debe y deja de pagar y por tanto debe cada vez más en intereses, esto La compañía difícilmente saldrá de esta situación si su planificación financiera y contable no fue la adecuada, por lo que reconocemos la relevance de ratios como el ratio de caja. Una compañía que resuelve, tal vez no rápido, pero con constante eficiencia y capacidad, es una compañía que habla bien de sí misma en forma contable, se convierte en una compañía que atrae socios y prestamistas, por su confianza y confiabilidad, destaca compromiso y planificación. que en este momento representan un activo económico muy fuerte para cualquier inversionista y / o prestamista. Es esencial marcar el ratio de tesorería como una herramienta útil para conocer el positioning de nuestra compañía y cuáles son las acciones que podemos emprender cuanto antes.

It is contemplated that a treasury ratio marks a company in its optimal solvency when it is around 1. When this occurs, the company finds itself in a situation in which the link between liquidity and realizability, and the maturities of debts in the short term they approach or resemble 1.