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Liquidity in Dollars: A Better Way to Measure Financial Strength

  • Writer: Ed Patton
    Ed Patton
  • 5 days ago
  • 2 min read

Updated: 1 day ago


Financial statements are prepared in dollar amounts – not percentages. So why is this script flipped when analyzing liquidity?


Business leaders naturally think in dollars. When reviewing performance, they ask: "Did we make $25,000 or lose $200,000?" not "Did we achieve a 15% margin, etc?"

Dollar amounts provide immediate, tangible context that percentages cannot.

 

Yet when assessing a company's liquidity – arguably the most critical metric for survival – there's a confusing shift to percentages.

Current ratios, quick ratios, debt-to-equity ratios, etc., dominate the conversation, which obscures the comprehension of financial strength behind perplexing numerical relationships.

 

This raises a fundamental question: If dollar amounts best communicate business results, why is critical liquidity assessed through the distorting lens of ratios and percentages?

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The Trender® Platform: Liquidity in Dollars, Not Ratios

 

The Trender Platform reports liquidity in the simplest, most common sense manner available:

  • The actual dollar amount of your business’ liquidity.

  • Financial strength is easily understood along with its drivers and changes.

 

They go further. Along with a dollar amount of liquidity, the Trenders show how much liquidity a business needs – calculated as one month's operating costs. This benchmark fits your company's size and provides a clear, objective target.

 

The result?

Evaluating your business’s liquidity and its trends becomes as simple as comparing two lines on a single graph (see example below).

 

No more decoding ratios.

No more wondering what 1.25:1 means in common sense, dollar terms...and is it good enough.

Just a clear, dollar-based understanding that provides the liquidity insights every business leader needs:

  • Does our company have the financial strength it needs?

  • What are the liquidity trends?

  • What is driving changes?

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See It in Action (sample calculations)

 

The spreadsheet linked below calculates both:

  • Your company’s current dollar amount of liquidity

  • The target amount of liquidity needed for your business


Complete the light blue cells with amounts from your existing accounting data.

Each item is a very common yet a very critical financial amount.

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Want to learn more? Reach out via the accompanying Contact sheet to discover how the Trender's practical liquidity insights can transform how you comprehend and monitor your company's financial well-being.


Edward B. Patton

5701 Broadway, Suite 102

San Antonio, Texas 78209 

Phone (210) 822-9977






 
 
 
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