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Dynamic and Static Evaluation of Financial Liquidity in Family Farms

Author

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  • Joanna Berezhnitska

    () (Warsaw University of Life Sciences)

Abstract

The research exposes the possibility of assessing liquidity in family farms. The purpose of the research is to check whether dynamic and classic (static) approaches to measuring liquidity give similar results in assessing the liquidity of households, and also to answer a question whether it is sufficient to apply only dynamic approach in assessing the liquidity of households. As the object of the research some family farms were chosen which had maintained continuous accounting records of agricultural transactions for the period of 2004-2011 and reflected in the balance sheet all short-term accounts payable and negative cash flows from financing activity. With the dynamic approach to calculation of the liquidity ratio the information was used about the funds received from operating activity, and about the funds which farmers classified as savings. A comparison of current and quick ratio has been done. It has been established that there is a very strong correlation between the figures obtained with the dynamic and static approach, though higher rates are observed in case of current liquidity indicator use. According to the author, due to the family farm specifics, namely, inventories problem intended for domestic needs, a measure of liquidity should use the dynamic approach.

Suggested Citation

  • Joanna Berezhnitska, 2013. "Dynamic and Static Evaluation of Financial Liquidity in Family Farms," Accounting and Finance, Institute of Accounting and Finance, issue 4, pages 87-93, December.
  • Handle: RePEc:iaf:journl:y:2013:i:4:p:87-93
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    File URL: http://www.afj.org.ua/ua/article/123/
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    More about this item

    Keywords

    family farms; liquidity valuation; dynamic approach; static approach; liquidity ratios; cash flows;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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