Liquidity values in municipal accounting in the Czech Republic

Abstract

The aim of this paper is to present the results of a study which analyzes the use of liquidity management among municipalities within the Czech Republic. A research carried out by the Faculty of Management and Economics of TBU in Zlín found that the use of liquidity management in Czech cities is still relatively low. Two basic data collection methods were applied: the use of accounting information from the public database (260 municipalities) and a questionnaire survey implemented in the form of controlled interviews (167 respondents). Applying the accounting data database, we sought to determine whether the recommended values of individual liquidity ratios are also valid in the public sector, specifically among municipalities. Based on the data analysis, we ascertained that most liquidity values of municipalities indicate higher values than those stated as recommended for the private sector, but based on this statistical evaluation, it is not possible as of yet to positively confirm this hypothesis at the significance level 0.05. The results of the study showed that municipalities use liquidity management within a limited scope. Non-profit organizations are recommended to control their liquidity according to general rules, whereas for municipalities it is most advantageous to use the quick ratio and cash position ratio. Each municipality can therefore determine the mutual relationship between components of short-term assets and short-term liabilities according to their own conditions and limitations, e.g. when handling flow transfers, money in funds, or tax income and expenses.