Operating Cash Flow Results
Cash flow from operations is positive this period.  This is especially good considering that overall results in the liquidity area of the report are less than ideal, as will be discussed.  It would be positive if the company could continue to generate positive cash flow to boost the short-term liquidity position of the company, which may need to be improved. 

General Liquidity Conditions
The company's liquidity position seems weak right now and has declined from last period even though both sales and profits have improved.  It could be that sales are consuming some cash in the company.  It is also not uncommon for growing companies to have liquidity difficulties from time to time.

The primary weakness in this area seems to be in the cash and near-cash accounts -- there does not appear to be enough resources invested in these assets relative to short-term obligations.  Still, the challenge here is one of quality, not one of quantity.  The firm has a "fair" amount of total current assets on hand, but there just are not enough highly liquid ones.  It could be beneficial for the company to find a way to "turn" non-cash assets to cash more quickly.

With regard to liquidity turnover performance, the company is operating in the norm.  This company's results in terms of inventory days, accounts receivable days, and accounts payable days are all about average right now.  Nothing drastic needs to take place in this area, but in order for the company to become one of the leading performers in its industry, it may seek to reduce the values in these three benchmarks over time. 

Tips For Improvement
Here are some ideas/actions that managers might consider in managing liquidity:

• Use trade credit or vendor financing when reasonable and feasible.  Trade credit occurs when one business receives a service from a supplier under an agreement to pay them later.  This is typically free debt and a good source of short-term financing because it does not carry interest.
• If cash is a constraint, try to establish a sufficient line of credit from the bank.  The business should obtain, but not necessarily use, as much financing as possible from the bank.  If you decide to obtain external financing, structure it as long-term debt rather than short-term debt in order to decrease monthly payments. 
• Use a monthly or bi-monthly payroll schedule if possible -- so long as morale will not be adversely affected.  This will allow funds to stay in the business longer.  Even labor outlays are a form of short-term financing.
• Eliminate or reduce some overhead or fixed costs to reduce monthly expenses.  Small decreases in overhead will typically yield large cash savings over time, especially if fixed costs can be reduced (those costs which tend to stay the same over time).