Solvency ratio. Formula for success

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The solvency of an enterprise is the main characteristic that is responsible for cooperation with investors, banking institutions, creditors. After all, it is this indicator that allows us to talk about the possibility of the organization

pay off your debts.

The solvency ratio (the formula of which has several variants), depending on the type of activity of the organization, is calculated in several ways. So, to calculate this coefficient, there is one approach in a manufacturing enterprise, and another in a trading enterprise.

Solvency ratio (formula for a manufacturing enterprise)

This calculation can be done, having on hand the financial statements of the enterprise (balance sheet). The formula is quite simple and is calculated as the ratio of equity to liabilities on the balance sheet liabilities.

Equity, in turn, is the net equity that is involved in the business, minus accounts payable, short-term and long-term loans.

Coefficientthe solvency of the enterprise, the formula of which is given above, also takes into account current and non-current assets. The focus is on current assets, because it is at their expense that, if necessary, you can pay off debt or pay for something.

An example of calculating this coefficient

Having the company's balance sheet on hand, we can immediately calculate the solvency ratio. The formula used is the one given in the article. We have the following data:

The following figures lie in the asset: the cash desk of the enterprise - 1,000 rubles, the balance on the current account - 10,000 rubles, goods in the warehouse in the amount of 10,000 rubles, production equipment - 100,000 rubles. The premises of the workshop - 100,000 rubles. As a result, we have assets in the amount of 221,000 rubles.

In the balance sheet liabilities: authorized capital - 100,000 rubles, term liabilities (such as settlements with the budget, wages) - 40,000 rubles, short-term liabilities (loans up to one year) - 60,000 rubles, long-term liabilities - 21,000 rubles. Balance currency - 221,000 rubles.

Let's get down to the calculations: from the liabilities of the balance sheet it is clear that the equity is 100,000 rubles, the rest is the obligations of the enterprise. In our case, the calculation will be as follows: 100,000 / 40,000 + 60,000 + 21,000=0.82. This suggests that we can only cover 82 percent of our obligations with our own money.

In practice, the approach to this coefficient is more serious. Analysts first of all look at the structure of assets,because working capital is much easier to realize than non-current assets.

There is also the solvency loss ratio, the formula of which is calculated using dynamic changes in solvency over several periods. This makes it possible to talk about the trend of this indicator at the enterprise for the reporting periods.

Normative coefficient values

Let's briefly consider the normative values given by the solvency ratio. The formula calculates the standard value as a percentage. The norm for a manufacturing enterprise is 0.5-0.8. If it is lower, it is dangerous to lend to such an enterprise, there is a risk of non-payment of the loan.

For trading companies and organizations with high liquidity (travel agencies, firms that provide services, construction companies), due to the nature of the business, this coefficient can be within the norm within 0, 1-0, 5.