Financial Terms / liquidity

# Understanding Liquidity & Cash Conversion

Liquidity is the measure of how quickly an asset can be converted into cash, making it an important factor to consider when assessing the value of an asset.

## Formula

``Liquidity Coverage Ratio = High-quality liquid assets / Net cash outflow over 30 day period``

## How do I calculate the liquidity?

```It is important for banks to understand how to calculate the liquidity coverage ratio in order to protect the financial system. The liquidity coverage ratio is calculated by dividing a bank's high-quality liquid assets into its net cash outflow over a 30-day period. The ratio must be at least 100% in order to be in compliance with regulations. Banks can use tools like  Sourcetable to calculate the ratio, which is a good way to determine a bank's liquidity position. The formula for calculating the liquidity coverage ratio is:

`Liquidity Coverage Ratio = High-quality liquid assets / Net cash outflow over 30 day period````

## What is Liquidity Risk Management (LRM)?

`Liquidity Risk Management (LRM) is a rule issued by the SEC that requires funds to have a written program to manage their liquidity risk. The program is designed to help ensure the fund can meet redemption requests and other cash needs.`

## Who is the program administrator?

`The program administrator is the person designated by the fund to administer the liquidity risk management program.`

## Can the program administrator delegate responsibilities?

`Yes, the program administrator may delegate certain responsibilities to a sub-adviser.`

## Key Points

How do I calculate liquidity?
`Liquidity Coverage Ratio = High-quality liquid assets / Net cash outflow over 30 day period`
Current Ratio
The current ratio measures a company's ability to pay off current liabilities with its total assets. It is calculated by dividing current assets by current liabilities and is used to assess a company's liquidity and ability to meet short-term obligations.
Liquidity Ratios
Liquidity ratios are financial metrics used to determine a debtor's ability to pay off current debt obligations without raising external capital. They are used to analyze a company's ability to pay off its debt in the event of an economic downturn or other financial distress.