Elasticity of Current Assets

 

What is the elasticity of current assets ?

 

The elasticity of the current assets is the percentage result of the ratio that puts the value of the total liquidity of the company at a given time as the numerator and all current assets as the denominator. It is an indicator that measures in percentage terms the relative weight of liquid assets (immediate liquidity + deferred liquidity) in relation to the total of current assets. In other words, it expresses the relative degree of total liquidity in relation to the overall total of current assets.

 

 

How to measure the elasticity of current assets ?

 

This KPI is measured in the following way, starting from the following formula which takes into consideration the values ​​at a given time, thus taking as a reference the values ​​of the Financial Statements as at 31 December of the year and calculating the following percentage value:

(A)> [(TOTAL LIQUIDITY 31.12 / CURRENT ASSETS 31.12) * 100] <

 

This percentage value is then compared with the year-to-date value of the same company, i.e. the following formula is used:

 

(B)> [(TOTAL LIQUIDITY 1.1 / CURRENT ASSETS 1.1) * 100] <

 

Ceteris paribus, the differential value resulting from the difference in the percentages (A) - (B), determines the elasticity of the Company's current assets. In fact, it is precisely the degree of elasticity of current short-term assets that expresses the company's ability to transform investments into immediate liquidity, this data provides further additional information to the data analytics, that is, to understand if the company has operated with a sufficiently elastic short-term financial structure and therefore with a trend of sufficient and adequate financial elasticity.

 

 

When to measure the elasticity of current assets ?

 

First of all, it should be noted that this value is used in advanced Benchmarking, which are necessary for the Machine Learning for Credit Risk ManagementTherefore, this UNIGIRO | KPI supports dynamic capital structure analysis considering the company's reference balance sheet at a given moment in time, creating benchmarks for Risk Management data analytics with aims of reducing financial risk.

The answer that this indicator is able to provide to creditors is in fact if the Company has had a history of current activities tending to lack of liquidity or tending to increase liquidity, and, if the company has operated with an increase in '' typical stable operating activity or instead has been subject to significant and important changes in purely financial terms.

This allows to obtain important additional information in the financial statement analysis, which allows to understand how much the business management of the company has been liquid - transforming the receivables into positive cash flows - compared to other companies which, although operating in the same geographical area or same sector and therefore allows us to understand if there have been significant events that have positively or negatively impacted the overall result of the Company in a given period of time.

 

In conclusion, this UNIGIRO KPI indicator measures in percentage terms the relative weight of the liquid assets book value in relation to the total amount of current assets. For this reason, this Key performance indicator is a pillar in the Financial Risk management and financial management for a deep analytical process and understanding financial sustainability.  Still, its value indicates whether the company carry out its business activity with a significant short-term financial structure based on its financial cycle.

 

 

 

 

 

UNIGIRO is a regtech facilitator. Its dynamic and extensive Key Performance Indicators (KPI) boost real-time monitoring of financial sustainability upgrading risk management regtech tools and corporate social governance.

MONITORING ENTERPRISE CREDIT RISK: the first Smart XBRL Data Analytics Engine Toolkit for Financial Risk Analysis that facilitate Creditors and Investors in monitoring company's creditworthiness and financial sustainability

uniGiro Brochure

UNIGIRO DEK 2021

Indicators

General informations

Payment methods

Image
GENERAL INFORMATIONS
EUROPEAN PRIVACY POLICY