International Journal of Economics and Finance; Vol. 11, No. 5; 2019 ISSN 1916-971X E-ISSN 1916-9728 Published by Canadian Center of Science and Education 85 Necessary and Sufficient Conditions for Liquidity Management José Antonio de França 1 & Wilfredo Sosa Sandoval 2 1 PhD in Accountancy, University of Brasilia (UnB), Brazil 2 PhD in Mathematics, Catholic University of Brasilia (UCB), Brazil Correspondence: José Antonio de França, PhD in Accountancy, University of Brasilia (UnB), Brazil. E-mail: franca@itecon.com.br Received: February 24 2019 Accepted: March 22, 2019 Online Published: April 15, 2019 doi:10.5539/ijef.v11n5p85 URL: https://doi.org/10.5539/ijef.v11n5p85 Abstract Liquidity as a measure of payment capacity must incorporate the attributes of efficiency, sustainability and synergy. Traditionally, liquidity is measured by financial indicators, centered in the current ratio (CR) as an indicator of nominal payment capacity. However, this indicator generates a gap in the liquidity assessment because it does not measure financial efficiency nor liquidity sustainability. This research paper proposes an indicator that combines nominal capacity with effective payment capacity that indicates the liquidity sustainability and financial efficient status, addressing a gap in the literature concerning liquidity management, and revealing the existence of financial synergy. In order to test this proposition, data from financial statements of 37 manufacturing firms from 2000 to 2015 were used, via parametric and nonparametric methods. In the analysis showed here, financial efficiency ratio (FER) and the liquidity sustainability ratio (LSR) were used to assess financial efficiency and sustainable liquidity. Robust empirical evidence was found showing that the main status of the firms‟ liquidity is weakly sustainable and therefore does not produce financial synergy. The results suggest that the combination of financial efficiency and nominal liquidity is a robust technique to indicate the firm‟s liquidity status. Keywords: liquidity sustainability coefficient, necessary and sufficient conditions, financial efficiency ratio, financial synergy 1. Introduction Liquidity, as the result of the combination of basic sustainability factors, what the literature calls financial synergy, is sustained by positive net cash flows resulting from internal financing costs lower than external financing costs, as well as from operational performance and asset productivity (Copeland, Weston, & Shastri, 2005, pp. 762-763). However, the literature on financial synergy focuses mainly on calculating and analyzing the ratio between financial quantities that represent assets and liabilities in the standardized financial statements of firms, neglecting, in particular, the contribution of the temporal physical quantities, which are essential to the assessment of cash flows. These temporal physical quantities are represented by the financial cycle, which, when combined with the traditional liquidity index, can reduce asymmetries and positively improve the firm's financial planning. Aiming at reducing asymmetries, this article discusses liquidity management efficiency within the financial sustainability context, combining financial quantities with temporal physical quantities, which is expected to obtain a reliable indicator of liquidity sustainability able to connect information on nominal capacity of payment with information on sustainable liquidity, signaling the existence of financial synergy. This proposed indicator is relevant to enrich the literature, because it shows the minimum point of sustainable liquidity and completes the studies initiated by Gentry, Vaidyanathan, and Lee (1990); Soenen (1993); Moss and Stine (1993); Stewart (1995), Farris II and Hutchison (2002); Lancaster, Stevens, and Jennings (1998);Gitman (2002, p. 112) among others, who preliminarily analyzed the subject. Traditionally, liquidity is a financial metrics used to assess a firm‟s performance through financial indicators produced from pieces of information generated by accounting, with an emphasis on the current ratio (CR), with the purpose of determining the firm‟s nominal payment capacity in a given period of time. CR results from the relationship between the firm‟s current assets and liabilities, in a context of positive working capital (PWC). However, liquidity assessment does not ensure financial efficiency nor liquidity sustainability because it does not