3.5.4—Improving liquidity ratios

Liquidity improves when cash or near-cash assets arrive sooner, short-term obligations are delayed or unnecessary stock is converted into cash. The action must be judged against cost, supplier relationships and future demand.

Collect receivables faster, negotiate longer supplier terms, sell excess stock or add capital can increase available cash. An overdraft or short loan may bridge a temporary gap, but it raises obligations and can be withdrawn.

A retailer may reduce its customer credit period and clear slow stock before a seasonal bill falls due. The improvement is real only if customers do not leave, stock is not sold at a damaging loss and the next cash forecast remains viable.

Selling assets or leasing them can improve immediate cash while creating future payments; raising new capital can dilute control. State the cash-flow timing, trade-off and evidence before calling a measure ‘improvement’.