ROE consists of structural parts i e net
4.2.3. Liquidity ratios
Liquidity shows how capable a company is to generate cash from internal sources (as well as the ability to obtain external financing), essential the company to pay short-term liabilities . Various stakeholders are interested in liquidity position of the company. Suppliers of goods check the liquidity of the company before selling goods on credit. Employees are interested in liquidity because it CHIR-98014 informs whether the company can meet its employee related obligation, such as salary, pension, provident fund, etc.
Liquidity increase due to various reasons, which origin are systematic and company-specific. Banking system liquidity crisis and sovereign debt crisis are the source of systematic liquidity risks, which can?t be managed by the company and mostly all company?s within the industry suffer fitness risk. Company-specific liquidity risks are :−default of a major counterparty;−unfavorable business perspectives or an unstable financial position;−concentration of company?s debt maturities, that reduces the market wish for the issuer;−company?s rating downgrade, when the issuer becomes unsuitable to institutional investors;−commercial debts; and−unexpected operational events (outage of PP, natural disaster).