Analysis of Liquidity Position Using Financial Ratios: A Case Study of Insurance Companies Operating in Saudi Arabia

Abstract

Liquidity in business research refers to a company's ability to produce cash on demand. This sheds light on how effectively the company might perform in unforeseen situations. A business that has a high level of liquidity will be able to raise the money it needs to continue operating during difficult times. This research paper aims to study the best liquidity option that is suitable for business firms operating in Saudi Arabia by analyzing the financial ratios. The data was collected, as a secondary source, from the Saudi Stock Exchange (Tadawul) website for the Insurance Sector only. Three different liquidity approaches, current ratio, quick ratio, and working capital, were applied to evaluate the best practices in the Insurance sector. Thirty (30) Insurance companies were targeted for this study. We found that some corporations had solid traditional ratios on the surface, but their cash flow ratios gave a different impression. However, several organizations had seemingly subpar traditional ratios; in these cases, the cash flow ratios offered a more insightful view.