Give the CCC a chance – There’s more than one way to measure liquidity

Description

Abstract: Many loan covenants include a minimum liquidity threshold based on static metrics, such as the current or quick ratio. Banks have learned the hard way that a significant decline in liquidity can foreshadow bankruptcy. But few lenders consider, or even know about, the cash conversion cycle (CCC), which factors timing into the liquidity equation. This article discusses the most common liquidity metrics and how, when used with these measures, the CCC offers greater insight into a borrower’s liquidity position over time.