2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16
To begin with, let's define the subjects and goals of financial analysis. The firm's inability to settle accounts with counterparties may result in the loss of both its own and borrowed financial assets. Therefore, the solvency of the enterprise worries not only its owners, but also other market players (counterparties). The subjects of external analysis of economic activity are business partners, investors and creditors. They study the degree of financial risks and property status to make a decision on cooperation. In case of bankruptcy proceedings, the analysis is carried out by a specially attracted arbitration manager.
Regardless of the legal form, the internal assessment of the solvency of an enterprise has the following goals:
• determining the degree of the ability of the object of analysis to fulfill its obligations;
• ensuring the stability of all processes; • observance of the financial interests of the owner;
• researchadditional sources of development;
• Ensuring the financial stability of the entire enterprise in the long term.
Properly organized accounting and regular audits will allow you to control the solvency of the enterprise, identify hidden reserves and unsuccessful decisions in managing financial flows.
Analysis Methods
Financial practitioners use several approaches to calculate and analyze the solvency of an enterprise. More informative are: • calculation of cash flows;
• calculation of liquidity ratios.
The cash flow method is used to regulate and manage the financial activities of an enterprise. Cash flow can be calculated directly or indirectly. The first is to compare revenue with expenditure. This technique allows you to draw conclusions about the sufficiency of funds to meet financial obligations. The indirect method demonstrates the relationship of profit with changes in cash flows. The result obtained is the cash-flow indicator for various types of activities - an assessment of the effectiveness of financial management. An analysis of the components of cash flows shows the structure of the sources of funds and the direction of their injections.
The methods of analyzing the liquidity of cash flows and building a factor model are much less frequently used.
Liquidity ratios
Such solvency indicators of an enterprise as liquidity ratios are calculated usingthe ratio of the corresponding lines of the asset and liabilities of the balance sheet. The obtained coefficients are compared with the normative, planned or previous values. Comparison in dynamics allows assessing the financial position of the object of analysis in the current period. To analyze the solvency of an enterprise, the following main ratios are used: total, absolute and current liquidity. Auxiliary are the coefficients of maneuverability, provision of own funds, critical assessment and the share of working capital in assets.
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