Cash flow analysis
A company’s liquidity is often mentioned in the same breath as solvency and profitability. They are therefore inextricably linked. A company needs sufficient liquidity to run the trading cycle, just as an engine cannot run without fuel or other energy source. Debts have to be paid, preferably not with other debts, because that can be dramatic. Too much money – and doing nothing with it – puts pressure on overall profitability, increases the balance sheet total and has a negative impact on solvency.
As in other areas, this is about the right balance. The evolution of liquidity in a company is analysed through two headings: 54/58 (cash) and 50/53 (cash investments)
More reading (January 2020 Analysis)