Draft:Crisis Liquidity Ratio
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The Crisis Liquidity Ratio (CLR) is a financial indicator used to assess the liquidity of a company under crisis conditions. It was developed to reflect situations where inventories may be more liquid than accounts receivable, which is often the case during economic downturns or financial instability.
Definition
[edit]The CLR is defined by the formula:
This ratio excludes receivables from current assets on the premise that, in crisis conditions, receivables may become illiquid or difficult to collect, whereas inventories, even if discounted, can often be turned into cash more quickly.
History
[edit]The Crisis Liquidity Ratio (CLR), defined as (Current Assets – Receivables) / Current Liabilities, is used in crisis conditions to reflect situations where inventories may be more liquid than receivables. It was proposed by Bulgarian economist Petar P. Petrov and has been applied in liquidity studies of the Bulgarian automotive sector.[1] The CLR was first introduced by Petrov in 2012 at the Ninth International Scientific Conference "Management of Innovations – Enterprises, Banks, Universities" in Varna, Bulgaria. It was later published in his book Practical Analysis of Financial Statements – Concepts and Examples (ISBN 9789542815587, Siela, 2014) and has since been applied in academic and consulting practices.[2]
Applications
[edit]The CLR is primarily used for:
- Assessing liquidity during economic downturns
- Analyzing enterprises in high-risk or unstable markets
- Complementing traditional ratios such as the current ratio and quick ratio when those may overestimate liquidity due to receivables
It is particularly useful in risk-sensitive environments and in credit analysis where conservative estimation of available liquid resources is required.
Comparison with other liquidity ratios
[edit]Unlike the current ratio or quick ratio, which include receivables as part of liquid assets, the CLR assumes that receivables may become unreliable in crisis periods. This approach leads to a more conservative and potentially more realistic view of liquidity during stress conditions.