From The Liquidity Report, I See “Net Balance Position”. What Does NBP Refer To?

Net Balance Position (NBP) is a stringent measure of Cash Liquidity, and goes beyond what traditional liquidity ratios can detect (like the Quick & Current Ratios). NBP goes beyond looking at clusters of the Balance Sheet, like Current Assets and Current Liabilities, and teases apart the Balance Sheet to account for the finer components of these account clusters.

For example, if Company A has $100k in Cash, and $400k in Accounts Receivable (AR), while Company B has $250k in Cash and $250k in AR, the Quick & Current Ratios will view these two companies as performing equally, if all other aspects of the companies are the same. In fact, Company B has far more Cash on hand, while appearing to carry less AR, a sign that Company B is collecting faster than Company A.

NBP seeks to understand the relationship between Working Capital Available and Working Capital Required, in the following way:

You could see how NBP requires the company to account for their AR & Inventory accounts as a Working Capital Need. iCFO also analyzes same-size industry peers, to determine the ideal amount of Cash your company should keep on hand.

Note: Your company may have a large amount of Assets within the AR and Inventory accounts, but if taking longer than 30-days to collect from your clients (Collection Period) or taking too long to turn your Inventory (Inventory Turns or Days), while Liabilities are due every 30-days, you risk a Cash Flow issue, that NBP helps you detect far more reliably than any traditional Liquidity measure.