At the present time in Russia there are quite a large number of methods for assessing liquidity and solvency, differing from each other, both in the composition of the calculated and analyzed indicators, and in their quantity and internal content. The calculation results obtained on the basis of these methods do not always accurately reflect the real state of affairs in the organization, due to the fact that traditional methods have some disadvantages:
Static - calculations are made for a certain date and do not reflect future receipts and expenditures of funds, both from ordinary and from financial and investment activities;
Formality - calculations are carried out based on data for the past period and do not take into account the long-term actions of a business entity aimed at improving the management of financial processes at the enterprise in order to ensure liquidity and solvency;
Diversity - the methods proposed by analytical scientists for assessing the liquidity and solvency of an organization differ both in the number of indicators used and in the methods of their calculation;
Universality - the proposed calculation algorithms do not take into account the industry specifics of the enterprise.
The liquidity and solvency of the enterprise constitute perhaps the most important aspect to be analyzed during the study financial condition. In this regard, we will consider the main methods of how to calculate the liquidity of an enterprise and draw a conclusion about the situation in the organization from this point of view.
For analysis purposes, the balance sheet is converted into an analytical one. In this case, assets are grouped depending on the degree of their liquidity, and liabilities - according to the urgency of fulfilling obligations.
As a result, the analytical balance sheet of the enterprise has the following form (the numbers of codes and sections of the balance sheet during the transition to new accounting standards are given in brackets):
Balance sheet asset
Group I (I A) - quickly realizable assets: current financial investments, cash and cash equivalents, other current assets, for example, short-term financial investments;
Group II (II A)- assets of medium urgency of sale: accounts receivable for goods, works, services, accounts receivable for settlements;
III group (III A)- slow-moving assets: inventories, work in progress, finished products in warehouses, goods, bills received, deferred expenses;
IV group (IV A) - out current assets: intangible assets, construction in progress, long-term financial investments.
Liability balance
Group I (I P)- short-term liabilities: short-term bank loans;
Group II (II P)- liabilities of medium maturity: current debt on long-term obligations, bills issued, accounts payable for goods, works and services, current settlement obligations, other current obligations;
III group (III P)- long-term liabilities: long-term bank loans, other long-term financial liabilities, deferred tax liabilities, provision for upcoming expenses and payments, or for the entire group - the total for sections II and III of the balance sheet liabilities;
IV group (IV P)- permanent liabilities: authorized capital, share capital, additional capital, reserve capital, unpaid capital, etc.
The traditional way of analyzing liquidity is to compare the assets and liabilities of the balance sheet, aggregated into four groups according to the following principle: assets - according to the degree of decrease in the liquidity of the property, liabilities - according to the degree of lengthening the maturity of liabilities. The organization's assets are combined into the following groups: absolutely liquid, fast-, slow- and hard-to-sell property. As for liabilities, the result of the grouping will be the following: the most urgent, short- and long-term obligations, as well as liabilities called permanent.
Next, you need to compare the resulting groups with each other by subtracting the corresponding group of liabilities from the group of assets. If this difference is positive, then there is a payment surplus, and otherwise there is a payment deficiency. It is believed that the condition of absolute liquidity consists in the presence of a surplus in the first three pairs of assets and liabilities and a deficiency in the fourth. Inequality in the latter group is regulating and plays an extremely significant role. It characterizes the organization’s own working capital.
The grouping of assets and liabilities is presented in Table 1.1.
Table 1.1 - Grouping of assets and liabilities for the purposes of liquidity analysis based on management reporting data
|
Group name |
Designation |
Asset item |
Group name |
Designation |
Liability item |
|
Most liquid assets |
Cash, short-term financial investments, structural receivables, bills receivable |
The most urgent obligations |
Accounts payable minus structural accounts, advances received, other short-term liabilities |
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|
Quickly realizable assets |
Short-term accounts receivable less structural, doubtful and bills receivable, regulatory balances finished products and other assets |
Short-term liabilities |
Short-term loans and borrowings, advances received, deferred tax liabilities |
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|
Slowly selling assets |
Inventories minus standard balances of finished products and non-liquid assets, VAT on purchased assets |
Long-term liabilities |
Long-term loans and borrowings |
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|
Hard to sell assets |
Non-current assets, long-term accounts receivable minus structural accounts, doubtful accounts receivable and illiquid assets |
Constant liabilities |
Own capital, structural accounts payable |
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Analysis of the balance sheet allows us to draw conclusions about the size and structure of liquid assets that the organization has, and the amount of loans secured by them.
As a rule, to assess the liquidity of an enterprise, first of all, a number of liquidity ratios are calculated. These ratios represent the ratio of liquid assets to one degree or another to the short-term debt of the enterprise.
Solvency means that an enterprise has cash and cash equivalents sufficient to pay accounts payable that require immediate repayment.
Indicators that allow assessing the liquidity and solvency of an enterprise are presented in Table 1.2.
Table 1.2 - Indicators assessing the liquidity and solvency of the enterprise
|
Indicator name |
Normal meaning |
Note |
|
|
Current ratio |
Gives overall assessment liquidity of the enterprise, showing how many rubles of working capital account for one ruble of current short-term debt |
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Critical liquidity ratio | |||
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Absolute liquidity ratio |
shows what part of short-term borrowed obligations can, if necessary, be repaid immediately from available funds |
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K-t provision of own working capital |
Own working capital acquired from own sources must be at least 10%. If this condition is not met, then the balance is considered unsatisfactory. |
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Quantity of supply of reserves from own sources |
Characterizes the current financial condition and the ability to provide reserves from our own sources. |
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|
Total solvency ratio |
A 1 + 0.5A 2 + 0.3A 3 |
Characterizes the ability of the enterprise to cover all obligations. |
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|
P 1 + 0.5P 2 + 0.3P 3 |
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|
K-restoration of solvency |
(k t.lik. con.) + (6 months/ /12 months)*∆k t.lik. |
Indicates that there is a tendency to either lose solvency or restore it. |
|
|
Loss kit solvency |
(k t.lik. con.) + (3 months/ /12 months.)*∆k t.lik. | ||
|
Standard value k t.lik. = 2 |
Legend:
OA – current assets;
KO – short-term liabilities;
DBP – deferred income;
DS – cash;
KFV – short-term financial investments;
DTZ – accounts receivable;
JUICE - own working capital;
Z – reserves;
VAT – value added tax.
Liquidity ratios are indicators that are used to assess an organization's ability to pay off existing obligations using the assets at the company's disposal.
Current ratio , in other words, the coverage ratio reflects the organization's ability to pay off its debt obligations during the duration of the production cycle.
The critical liquidity ratio reflects the organization’s ability to pay off its debt obligations during the duration of the production cycle if difficulties arise with the sale of finished products or goods.
The absolute liquidity ratio characterizes the extent to which the company's urgent debt is covered by the most liquid assets. In other words, the indicator under consideration indicates how many obligations the company can pay off immediately.
The total solvency ratio can show the ability of an enterprise to cover all its obligations (long-term and short-term) with existing assets.
If one or another type of analysis reveals that an enterprise has insufficient liquidity, this may lead to an inability to repay its obligations on time and in full. This situation may be a harbinger of bankruptcy, so it is extremely important to take management decisions aimed at increasing the liquidity and solvency of the enterprise.
Thus, it becomes clear that assessing the solvency of an enterprise is a very responsible and important event that must be carried out regularly. The more often the situation in the organization is monitored, the faster problems can be identified and the crisis situation can be dealt with in the best possible way.
The methods described above are the most popular; it is with their help that the liquidity and solvency of an enterprise is usually assessed. However this analysis is not sufficient for financial diagnostics; it is necessary to study other aspects of the company’s activities.
The external manifestation of financial stability is solvency.
There are four types of financial stability - absolute financial stability, normal financial stability, unstable and crisis financial condition of the enterprise.
1. An absolutely stable financial condition of the organization is characterized by complete provision of reserves with its own working capital. It is determined by the inequality:
VA + Z< СК (1.1)
2. a normally stable financial condition is characterized by the provision of reserves with its own working capital and long-term borrowed sources, which corresponds to the inequality:
SK - VA + Z< СК + ДО (1.2)
3. an unstable financial condition is characterized by the provision of reserves at the expense of own working capital, long-term borrowed sources and short-term credits and borrowings, i.e. at the expense of all the main sources of formation of reserves corresponding to inequality:
SK + DO - VA + Z = SK + DO + KZK (1.3)
4. crisis financial condition - reserves are not provided by the sources of their formation; the organization is on the verge of bankruptcy.
This state corresponds to the inequality:
VA + Z > SK + DO + KZK (1.4)
where, VA – non-current assets; Z – inventories + VAT on purchased values; SC – capital and reserves (equity capital); DO – long-term liabilities; KZK – short-term loans and credits.
It is obvious that managing the sustainability of dynamically developing organizations is much more difficult and problematic. Based on content analysis general management Let's determine the final form of achieving organizational sustainability. As you know, the basis of the overall management of an organization is the management of its functional components: production, organizational, economic and financial. When implementing the functions of production and organization, the main characteristics of the internal environment of the enterprise are formed, ensuring the accuracy of the production policy and the flexibility of the organizational structure. The state of the economic function is described by income, cost, profit, etc. As a result, a sustainable enterprise can achieve economic indicators in its activities that are no lower than the industry average and is able to maintain them for a long time, which creates a cumulative effect that further strengthens the enterprise’s position in the market. All processes initiated by production and organization, managed and modified through the economy, are manifested through the financial management system in the form of quantitatively measurable indicators (the source of information is financial reporting). Financial management at an enterprise is aimed at maintaining a stable structure of the enterprise's assets, both during current operations and at all stages of its internal and external growth. The financial stability of an enterprise is a necessary condition for its continued activity, during which timely and complete fulfillment of obligations to the enterprise personnel, the budget, creditors, partners, owners is carried out, and investments are made in its development.
Despite the various reasons that give rise to instability in the development of an enterprise, its final form is financial stability. That is why financial stability management needs to be given increased attention.
The goal of financial stability management is to maintain, in a changing internal and external environment, a dynamic financial balance, stable solvency, creditworthiness and investment attractiveness of an enterprise that can ensure an increase in its market value. The information base for making decisions on managing financial stability is the indicators for its assessment, which appear after analyzing financial activities.
To determine the level of financial stability of an organization, a set of relative indicators is used. With their help, the dynamics of the financial structure and financial stability of the enterprise are assessed. To do this, consider the dynamics of two groups of quality indicators:
Structures of sources of funds (capitalization indicators). Indicators for this group are formed by comparing certain groups of property and sources of its coverage.
Quality of costs associated with servicing external sources (coverage indicators). Using the indicators of this group, an assessment is made of whether the enterprise is able to maintain the existing structure of sources of funds.
To assess financial stability, a number of coefficients are used (Table 1.3).
Table 1.3 - Indicators characterizing the financial stability of the enterprise
|
Indicator name |
Normal meaning |
Note |
|
|
Set of financial independence (autonomy) |
Equity |
Shows the share of equity capital in the total amount of financing sources. The higher the indicator, the more independent the organization. |
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|
Balance currency |
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Funding package |
Equity |
Shows which part of the activity is financed by borrowed capital, and which by own capital. |
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|
Borrowed capital |
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Borrowed capital |
Shows the share of debt capital in the total balance sheet. |
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|
Balance currency |
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|
Own assets maneuverability kit |
Own about. capital |
Shows what share of equity capital invested in current assets occupies in the total amount of equity capital |
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|
Equity |
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|
Towards financial sustainability |
Sustainable Sources Balance currency |
Shows what part of the enterprise's assets is financed from sustainable sources (equity + long-term liabilities). |
An important place in the study and analysis of the liquidity of an enterprise is occupied by the study of net (own) working capital, that is, the difference between current assets and short-term liabilities. Such capital is necessary to maintain the financial stability of the company: if the cost of working capital exceeds the amount of short-term liabilities, then the company can pay off the latter, and then continue its activities.
The more net working capital a company has, the more independent it is financially, even if the turnover of current assets slows down in cases of problems with the sale of products or delays in payments by debtors of their debts or even losses of current assets.
The amount of net working capital that allows an organization to feel financially stable depends on the type of activity, market positioning and other features of the company’s functioning: its size; sales volumes, inventory turnover rate and receivables, situation on the credit market, etc.
At the same time, both a lack and a surplus of net working capital can have a negative impact on the company’s activities. If this capital is insufficient, counterparties may conclude that the enterprise is insufficiently solvent; moreover, such a situation may lead the company to bankruptcy. But if the cost of net working capital is significantly higher than the enterprise requires for normal operations, we can conclude that resources are being used inefficiently. An example is raising funds by obtaining loans, issuing shares or selling fixed assets in excess of existing needs. This also includes the irrational use of enterprise profits.
Thus, managers, when conducting a financial analysis of a business, must pay attention not only to dry balance sheet numbers, but also to its structure and dynamics of change. And then problems with the solvency of the enterprise will be much easier to solve.
Modern economic science has at its disposal a variety of foreign and domestic methods for assessing the solvency and financial stability of an enterprise. Despite their differences, all methods include an assessment of the dynamics and structure of balance sheet items, as well as the calculation of financial ratios.
The most well-known methods include:
Methodology for analyzing the financial condition of an enterprise, based on the use of only calculated ratios;
Methodology for assessing the financial condition of an organization, approved Federal service Russia on financial recovery and bankruptcy;
Methodology for analyzing the financial condition of an enterprise, based on the use of absolute and relative financial indicators;
Methodology for analyzing the financial stability of an organization, taking into account life cycle based on an integral indicator;
Methodology for analyzing financial stability by dividing assets into financial and non-financial.
In the practical activities of economic, financial and analytical services of enterprises, to assess the solvency and financial stability of an enterprise, as a rule, the first three methods listed are used, the rest are at the level of scientific recommendations.
The analysis of the solvency and liquidity of an enterprise is carried out not only by the managers and relevant services of the enterprise, but also by its founders and investors. In order to study the efficiency of resource use, banks to assess lending conditions, determine the degree of risk, suppliers to receive payments on time, tax inspectorates to fulfill the budget revenue plan, etc. In accordance with this, analysis is divided into internal and external.
Internal analysis is carried out by enterprise services, and its results are used for planning, forecasting and control. Its goal is to establish a systematic flow of funds and allocate own and borrowed funds in such a way as to ensure the normal functioning of the enterprise, obtain maximum profit and avoid bankruptcy. External analysis carried out by investors, suppliers of material and financial resources, and regulatory authorities on the basis of published reports. Its goal is to establish the opportunity to invest funds profitably in order to ensure maximum profit and eliminate the risk of loss.
Analysis of balance sheet liquidity consists of comparing funds for assets, grouped by the degree of their liquidity and arranged in descending order of liquidity, with liabilities for liabilities, grouped by their maturity dates and arranged in ascending order of maturity. The groupings below are made in relation to the balance sheet.
Depending on the degree of liquidity, i.e. the speed of conversion into cash, the assets of the enterprise are divided into the following groups:
1. The most liquid assets. These include items from Section II of the balance sheet “Cash” and “Short-term financial investments” (securities).
2. Quickly realizable assets. These include short-term receivables and other current assets from section II of the balance sheet. If a debt of participants in contributions to the authorized capital is discovered, the total of quickly realizable assets is reduced by its amount:
3. Slowly realizable assets are considered to be articles from section II of the balance sheet, namely: “Inventories”, “Value added tax”, “Debt of participants for contributions to the authorized capital”, as well as articles “Long-term financial investments” and “Deferred tax assets” "from section I of the balance sheet.
Inventory cannot be sold until a buyer is found for it. Inventories of raw materials and work in progress require, in some cases, pre-processing before they can be sold and converted into cash.
4. Hard-to-sell assets - articles of Section I of the balance sheet, with the exception of articles of this section included in the previous group, and “Long-term accounts receivable” from Section II of the balance sheet. Assets that are intended to be used for economic activity over a relatively long period.
Balance sheet liabilities are grouped according to the urgency of their payment:
1. The most urgent obligations. These include articles from section V of the balance sheet: “Accounts payable”, “Debt to participants for payment of income” and “Other short-term liabilities”.
2. Short-term liabilities - short-term loans and borrowed funds, reserves for future expenses from section V of the balance sheet.
3. Long-term liabilities - long-term loans and borrowed funds from section IV of the balance sheet.
4. Constant liabilities - articles Section III balance. The item “Deferred income” from Section V of the balance sheet is added to the total of this section.
A firm is considered liquid if its current assets exceed its current liabilities, the firm may be more or less liquid. A firm whose working capital consists primarily of cash and short-term accounts receivable is generally considered more liquid than a firm whose working capital consists primarily of inventory. To check the liquidity of the company, it is necessary to conduct a balance sheet liquidity analysis.
To determine the liquidity of the balance sheet, you should compare the results of the given groups for assets and liabilities.
The balance is considered absolutely liquid if the following ratios exist:
The fulfillment of the first three inequalities (equalities) in this system inevitably entails the fulfillment of the fourth inequality (equality), therefore, it is practically essential to compare the results of the first three groups for assets and liabilities. The fourth inequality (equality) is of a “balancing” nature and at the same time has a deep economic meaning: its fulfillment indicates compliance with the minimum condition for financial stability - the presence of the enterprise’s own working capital.
In the case when one or more inequalities have a sign opposite to that fixed in optimal option, balance sheet liquidity differs to a greater or lesser extent from absolute. In this case, the lack of funds in one group of assets is compensated by their surplus in another group, although compensation in this case takes place only in value, since in a real payment situation less liquid assets cannot replace more liquid ones.
Comparison of the most liquid funds and quickly realizable assets with the most urgent obligations and short-term liabilities allows you to find out current liquidity.
Current liquidity indicates the solvency (or insolvency) of the enterprise for the period of time closest to the moment under consideration. To determine current solvency, it is necessary to compare liquid funds of the first group with payment obligations of the first group:
TL = (Al +A2) - (P 1 + P2) (1)
A comparison of slowly selling assets with long-term and medium-term liabilities reflects promising liquidity:
PL = A3 - PZ (2)
Prospective liquidity is a forecast of solvency based on a comparison of future receipts and payments (of which, of course, only a part is represented in the corresponding groups of assets and liabilities, so the forecast is quite approximate).
To more accurately assess the solvency of an enterprise, in domestic practice the value of net assets is calculated and their dynamics are analyzed. Net assets (NA) represent the excess of the enterprise's assets over the liabilities taken into account. The assets involved in the calculation include the monetary and non-monetary property of the enterprise, with the exception of the debt of the participants (founders) for contributions to the authorized capital.
Liabilities involved in the calculation include part of the enterprise’s own obligations (targeted financing and revenues), external obligations to banks and other legal entities and individuals:
HA=A-ZK (3)
where, A - assets
ZK - borrowed capital(credits, banks, loans).
In domestic and world practice, three relative liquidity indicators are calculated based on balance sheet data:
1. absolute liquidity ratio;
2. critical (interim) liquidity ratio;
3. current liquidity ratio (coverage).
These indicators are of interest not only for the management of the enterprise, but also for external subjects of analysis: the absolute liquidity ratio is of interest for suppliers of raw materials, the quick liquidity ratio - for banks, the current liquidity ratio - for investors.
The most mobile part of working capital is cash and short-term securities. The latter in the sense that they can quickly and easily be converted into money. Working capital in money is ready for payment and settlement immediately, therefore the ratio of this part of working capital to short-term liabilities of the enterprise is called the absolute liquidity ratio. Based on it, you can obtain a more accurate critical assessment of the degree of liquidity. Its value is considered theoretically sufficient if it reaches 0.2--0.25.
When calculating the first indicator, cash in hand, in bank accounts, as well as securities that can be sold on the stock exchange are taken as liquid funds (the numerator of the fraction). The denominator is short - term liabilities .
The liquidity of funds invested in accounts receivable depends on the speed of payment document flow in the country's banks, timely execution of bank documents, timing of the provision of commercial loans to individual buyers, their solvency and other reasons. If to cover short-term obligations, other than cash and securities mobilize funds in settlements with debtors, you can obtain a liquidity ratio. In world practice, it is called the critical assessment coefficient, or urgency. Theoretically justified estimates of this coefficient lie in the range of 0.7--0.8 and even 1.
The current liquidity ratio gives a general assessment of the liquidity of the enterprise, showing how many rubles of working capital (current assets) per ruble of current short-term debt (current liabilities). The logic of this comparison is as follows: the enterprise pays off its short-term liabilities mainly at the expense of current assets; therefore, if current assets exceed short-term liabilities, the enterprise can be considered to be operating successfully (at least in theory). The value of the indicator can vary significantly by industry and type of activity, and its reasonable growth in dynamics is usually considered as a favorable trend. In Western accounting and analytical practice, the critical lower value of the indicator is given - 2. However, this is only an approximate value.
Factors that reduce the current ratio are presented in Figure 1.
Figure 1. - Factors negatively affecting the current liquidity ratio
If the current liquidity ratio is below the optimal value, this indicates that short-term liabilities (current liabilities) exceed current assets, and financial situation not entirely prosperous. For potential partners, the financial risk when concluding transactions increases significantly.
The indicators discussed above are the main ones for assessing liquidity and solvency. However, there are other indicators that are of some interest to the analyst.
The coefficient of provision of current activities with own working capital. It shows what part of current assets is financed from the enterprise's own funds.
Unlike non-financial accounts payable, loans must be paid for, so it is obvious that if an enterprise does not have enough income from current activities, it is forced to make do with its own funds. Thus, the value of the indicator depends on many circumstances, so it is no coincidence that in international accounting and analytical practice there are no generally accepted recommendations regarding the value and dynamics of the coefficient.
As for domestic practice, the regulations related to characterizing the degree of satisfaction of the balance sheet structure and predicting possible bankruptcy provide a recommended lower limit for this indicator - 10%. In other words, if the current assets of an enterprise are covered by less than 10% of its own funds, its current financial position is considered unsatisfactory.
The coefficient of maneuverability of operating capital shows what part of this capital is immobilized in inventories and long-term receivables. A decrease in the indicator in dynamics is a positive trend in the activity of the enterprise.
"Finance: planning, management, control", 2011, N 3
When analyzing the liquidity and solvency of an enterprise, it is necessary to study its property position. Property status is the sum of the enterprise’s funds and their sources by type. In assessing the property status of an enterprise, a number of indicators are used, calculated according to financial statements. Based on indicators of property status, we can draw a conclusion about its qualitative change, the structure of economic assets and their sources.
When analyzing the property situation on the basis of the balance sheet, indicators that characterize it are calculated, and their changes over the year and over a number of years are determined. These indicators include:
1. The amount of the company’s capital (Cap.)- the amount of economic assets at the disposal of the enterprise. It is equal to the balance sheet total - net:
Cap. = F. N 1, balance sheet total.
2. Equity capital of the enterprise (SC)- the enterprise’s own funds as of a certain date, which are determined based on the results of section. 3 balance sheets "Capital and reserves":
SK = F. N 1, section. 3.
3. Own working capital(SOS)- the amount of own funds that are in circulation. They are determined by adding to equity(SC) long-term liabilities (DO) and subtracting the amount of long-term assets (DA):
SOS = SK + DO - YES.
SOS = TA - TO.
4. Functioning capital (FC)- this is the amount of own working capital that is constantly involved in turnover. Overdue receivables, as a rule, contain own working capital that does not participate in circulation for a long time; they are immobilized (i.e., diverted from circulation). Funds that are in accounts receivable and will be returned 12 months after the reporting date do not participate in turnover. Therefore, to determine the operating capital, it is necessary to exclude from the own working capital (SOC) receivables, payments for which are expected more than 12 months after the reporting year (DZ) and overdue receivables (APR), which is shown in form N 5:
FC = SOS - PDZ - DDZ.
5. Raised capital (PC)- this is the sum of long-term (LO) and current liabilities (TO). It characterizes the amount of debt of the enterprise at the moment and is equal to the sum of the results of section. 4 and 5 of the balance sheet:
PC = BEFORE + TO.
6. Current assets (TA), or “Mobile assets”, “Current assets” - characterize funds located in inventories, expenses, cash and accounts receivable, i.e. summary of section 2 balance sheet assets:
TA = Result of sec. 2A.
They are called mobile assets because, unlike fixed assets and other non-current assets, they can be returned faster than other assets in the form of cash for settlements with debtors.
7. Current obligations (TO), or current liabilities, are debts that must be repaid within a year. This debt includes short-term loans and credits:
TO = F. N 1, result of section. 5.
8. Long-term assets (YES), it’s nice to call them “immobilized assets” - this is the sum of fixed assets and other non-current assets, which, unlike current assets (mobile assets), circulate more slowly and are determined based on the results of Sect. 1 balance sheet asset, i.e. according to the formula:
YES = F. N 1, result of section. 1.
9. Long-term liabilities (LO)- these are loans and borrowings received for a long period - more than one year. They are shown in the liability side of the balance sheet in section. 4:
DO = F. N 1, result of section. 4.
10. Inventories and costs (PIZ)- these are working capital located in production inventories and costs:
Inventory = Produced Inventory + Unfinished Produced Inventory + Ready cont. + Comrade + Expenses for future periods.
11. Quick-liquid assets (ULA)- these are funds that can be used in the near future to cover short-term obligations. These include accounts receivable, payments for which are expected within 12 months after the reporting date:
UAV = Deb.Ass. in current 12 months
12. The most liquid assets (LAs)- These include all cash and short-term financial investments.
NLA = DS + Krat.Fin.Vl.
13. Hard-to-sell assets (Tr.R.Act.)- these are funds that are almost impossible to use to cover short-term debt. These include - the amount of long-term assets (the total of section 1 of the balance sheet asset and overdue receivables):
Tr.R.Act. = YES + PDZ.
Solvency is the ability to pay off your payment obligations in a timely manner with available resources. The assessment of solvency is carried out on the basis of the liquidity characteristics of current assets, i.e. the time required to convert them into cash.
In turn, the analysis of balance sheet liquidity consists of comparing assets, grouped by the degree of decreasing liquidity, with liabilities, which are grouped by the degree of urgency of their repayment. Depending on the degree of liquidity, the assets of the enterprise are divided into 4 groups:
Liabilities are grouped according to the degree of urgency of their payment:
The relationship between groups of assets and liabilities characterizes liquidity, i.e. a company's ability to pay its short-term obligations. The balance is considered absolutely liquid if:
A1 >= P1
¦
¦ A2 >= P2
<
¦ A3 >= P3
¦
L A4<= П4
The relevance of determining balance sheet liquidity acquires particular importance in conditions of economic instability, as well as during the liquidation of an enterprise due to its bankruptcy. Here the question arises: does the enterprise have enough funds to cover its debt. The same problem arises when it is necessary to determine whether the enterprise has enough funds to pay creditors, i.e. the ability to liquidate (repay) debt with available funds. In this case, speaking of liquidity, we mean the presence of working capital at the enterprise in an amount theoretically sufficient to repay short-term obligations.
To determine the liquidity of an enterprise's balance sheet, a whole system of indicators is calculated in the form of coefficients reflecting the ratio of certain balance sheet items and other types of financial statements.
We believe that the head of an enterprise can assess the liquidity of the company even at the stage of familiarization with the balance sheet, comparing the amounts of Section. 5 liability "Short-term liabilities" with the amount of section. 2 assets "Current assets". The excess of current assets over the amount of short-term liabilities indicates that the company has the potential to pay off its creditors, however, in order to consider the company’s balance sheet liquid, current assets must significantly (more than double) exceed current liabilities. But for a complete assessment of liquidity and solvency, along with absolute indicators, relative indicators at the beginning and end of the analyzed year are calculated, their change over the year is determined and a comparison is made with established standards. These indicators include:
Coverage ratio- it gives a general assessment of the liquidity of the enterprise, characterizing the extent to which short-term (current) obligations are secured by current (working) funds, i.e. how many rubles of financial resources invested in current assets account for one ruble of current liabilities, and is calculated by dividing the amount of current assets (total of section 2 of the balance sheet assets) by current liabilities (total of section 5 of the liabilities of the balance sheet), i.e. according to the formula:
Kp = TA / TO.
As a rule, the growth of this indicator is viewed positively. However, a significant increase in this indicator is undesirable and indicates a slowdown in the turnover of funds invested in inventories and an unjustified increase in accounts receivable. According to the experience of enterprises, it is considered normal when this indicator is 2.0 or more. It can be considered satisfactory if the value is within 1.5.
Quick liquidity ratio (Kb.lic.) characterizes the share of cash, settlements and other assets in current liabilities and is calculated using the following formula:
Kb.lik. = (DS + DZ up to 12 m-ev - PDZ) / TO.
The quick liquidity ratio determines the ability of an enterprise to fulfill current obligations from quickly salable assets and complements the coverage ratio indicator. A low quick ratio indicates high financial risk and poor potential for attracting additional financial resources from outside. It should be considered normal when this indicator exceeds 1.0, i.e. when quick assets equal or exceed the amount of current liabilities. This indicator is of interest to banks and other lending institutions when providing loans.
Absolute liquidity ratio (Kab.liq.) characterizes the share of cash in current liabilities and is defined as the ratio of cash (the most liquid assets) to current liabilities. It is calculated by the formula:
Kabs.lik. = NLA / TO.
Based on the absolute liquidity ratio, it is possible to determine the availability of funds to cover obligations at the moment. It is considered normal when this coefficient is 0.2 or higher. A significant increase in this indicator is undesirable, since money must be in circulation, i.e. work and generate income. It is of interest primarily to suppliers of goods of a given enterprise. Its unattainability may be due to rapidly changing business conditions and the need to fully utilize all material resources in circulation, and primarily cash.
The above liquidity ratios are considered basic, and from them one can draw a conclusion about the liquidity, solvency and creditworthiness of the enterprise. In addition, for a deeper study of liquidity, enterprises are recommended to additionally calculate the following indicators.
Maneuverability of functioning capital, or coefficient of maneuverability of operating capital (Kman.f.cap.), which is defined as the ratio of the amount of funds in inventories and expenses to operating capital, i.e. to own working capital minus overdue receivables, and is calculated using the formula:
Kman.f.cap. = Zap.zat. / FC.
This indicator characterizes the share of the enterprise’s equity capital, which is in a form that does not allow them to freely maneuver, because in order to pay off the current debt, it is necessary to include inventories and costs in circulation. According to established experience in manufacturing enterprises, it is considered normal when this coefficient does not exceed 0.5, i.e. the amount of inventories and costs does not exceed 50% of the total amount of own working capital. The presence of a high coefficient of maneuverability of operating capital increases the risk of bankruptcy, which indicates the immobilization of own funds into inventories that cannot be sold in the near future, and their amount is aimed at covering short-term debt and makes it difficult to pay off current obligations.
Maneuverability of total capital, or total capital maneuverability coefficient (Kman.), is defined as the ratio of current assets, i.e. working capital to the amount of economic assets (capital) according to the formula:
Kman. = TA / Cap.
This ratio shows the share of more maneuverable capital in the total amount of economic assets, which can be quickly converted into cash, in contrast to immobilized (fixed) assets.
It is considered normal when this indicator is more than 0.6, i.e. Working capital in the total amount of economic assets is more than 60%. The higher this indicator, the more liquid the company is considered, the faster the turnover rate of the company’s funds and the higher the efficiency of using funds.
Further, we note that when analyzing the solvency of an organization, the funds on the balance sheet asset, grouped by the degree of their liquidity, are compared with the liabilities on the liability side, also grouped by their maturity dates. Then coefficients characterizing the level of solvency of the enterprise are calculated.
According to the degree of liquidity, i.e. the rate of transformation into cash, the assets of the enterprise, as noted above, are divided into the following groups: the most liquid assets, quickly sold assets, slowly sold assets, hard to sell assets. Liabilities according to the degree of debt repayment are divided into the most urgent liabilities, short-term liabilities, long-term liabilities and permanent liabilities.
Payment ratio of the most urgent obligations (Kpl.n.sr.ob.) is defined as the ratio of the most liquid assets (LLA) to the amount of the most urgent liabilities (Sob):
Kpl.n.s.r.o. = NLA / Maximum avg.
Payment ratio of short-term liabilities (Kpl.ks.p.) is defined as the ratio of quickly realizable assets (ARA) to the sum of short-term liabilities (SLT), i.e. according to the formula:
Kpl.ks.p. = BRA / KSP.
Payment ratio of long-term liabilities (Kpl.d.p.) is defined as the ratio of slowly selling assets (SRA) to the sum of long-term liabilities (LTL), i.e. according to the formula:
Kpl.d.p. = MPA / chipboard.
Comparison of slowly selling assets with long-term liabilities shows promising liquidity, i.e. forecast of solvency based on future receipts and payments. As a rule, slow-selling and hard-to-sell assets are used to cover debt in the event of bankruptcy of an enterprise.
The ratio of hard-to-sell assets to permanent liabilities should be less than 100%, i.e. the capital and reserves of the enterprise must exceed long-term assets, otherwise the enterprise will lack SOS.
The calculation of liquidity and solvency indicators made in this way makes it possible to compare the balance sheets of an enterprise from different periods, as well as the balance sheets of various enterprises in order to assess their financial stability and solvency.
When analyzing the solvency of an enterprise, it is necessary to consider the causes of financial difficulties, the frequency of their formation and the duration of overdue debts. The reasons for insolvency may be failure to fulfill the plan for production and sales of products; increasing its cost; failure to fulfill the profit plan - lack of own sources of self-financing; high percentage of taxation. One of the reasons for the deterioration of solvency may be the incorrect use of working capital: diversion of funds into accounts receivable, investment in excess reserves and for other purposes that temporarily do not have sources of financing.
Those enterprises whose liquidity and solvency indicators are below established standards and tend to deteriorate may be considered financially unstable. In order not to bring the enterprise to such a level, it is necessary to systematically analyze and evaluate the financial stability, as well as the liquidity and solvency of the organization. Improving the level of financial stability of an enterprise is achieved by:
At the same time, when assessing and analyzing the liquidity and solvency of a particular enterprise, one should, if possible, take into account its specifics - industry, regional, etc.
In contrast to balance sheet liquidity, which characterizes the ability of an enterprise to pay off its short-term debtors at the moment, financial stability is a certain state of the enterprise that guarantees its constant solvency. This constant solvency can be achieved by achieving good economic solvency. The economic viability of an enterprise is the extent to which a company can maintain financial independence through the effective use of labor and material resources of the enterprise, increasing production volume and sales of products.
Considering the financial statements, the head of the enterprise can make an initial conclusion about financial stability by comparing the results of Sect. 3 balance sheets "Capital and reserves" with the results of section. 4 "Long-term liabilities" and section. 5 "Short-term liabilities". Exceeding the total of Sect. 3 balance sheet indicates that the company is financially stable, it is less dependent on external debts and creditors.
Then the head of the enterprise must compare the results of section. 2 "Current assets" and 5 "Current liabilities" of the balance sheet. Significant excess of the total of section. 2 assets of the balance sheet indicate that working capital is dominated by own funds, which also indicates the financial independence of the enterprise from creditors, i.e. on the financial stability of the company.
The main indicators of financial stability should be considered the coefficients of autonomy, financial stability and financial dependence.
Autonomy coefficient characterizes the independence of the financial condition of an economic entity from borrowed sources of funds. It shows the share of own funds in the total amount of economic assets and is determined by the formula:
Kavt. = SC / Cap.
An increase in the autonomy coefficient indicates an increase in financial independence and a decrease in the risk of financial difficulties. The norm is not lower than 0.5, preferably 0.5 - 0.7.
Financial stability ratio represents the ratio of equity and borrowed funds. It is determined by the formula:
Kfin.set = SK / PK.
The excess of own funds over borrowed funds means that the business entity has a sufficient margin of financial stability and is relatively independent of external financial sources. A value of 2 or more is considered normal.
Maneuverability of equity capital is defined as the ratio of operating and equity capital and characterizes the share of own working capital (minus overdue receivables) in equity and is determined by the formula:
Moscow time = FC/SC.
The value of this coefficient is preferably within the range of 20 - 30%.
Financial dependency ratio indicates an increase or decrease in financial dependence and the risk of financial difficulties, characterizes how many household assets are per 1 ruble. own funds, and is defined as the ratio of economic assets (capital) to equity capital according to the formula:
Finance manager = Cap. / SK.
This is the inverse indicator of the autonomy coefficient. If its level is equal to one, this means that the owners fully finance their enterprise with their own capital.
Concentration ratio of attracted capital characterizes the share of attracted capital in the entire amount of economic assets. It is determined by the formula:
Kconc.PC = PC / Cap.
The lower this indicator, the higher the financial independence and independence of the enterprise. The sum of the coefficients of autonomy and concentration of attracted capital should be equal to 1.
Ratio of attracted and own capital. The value of this indicator can vary significantly depending on the capital structure and industry sector of the enterprise. It is determined by the formula:
Kspsk = PC / SK.
The lower this indicator, the higher the financial independence, independence of the enterprise and, in general, the autonomy of the enterprise in front of external creditors.
It should be noted that there are no uniform regulatory criteria for the considered indicators of liquidity and solvency, as well as financial stability. They depend on many factors: the industry of the enterprise, the turnover of working capital, the principles of lending, the existing structure of sources of funds, the reputation of the enterprise and other factors. Therefore, the acceptability of the values of these coefficients, assessment of their dynamics and directions of change can only be established as a result of spatio-temporal comparisons across groups of related enterprises.
Only one rule can be formulated for enterprises of any type: the owners of the enterprise (shareholders, investors and other persons who have contributed to the authorized capital) prefer reasonable growth in the dynamics of the share of borrowed funds, on the contrary, creditors (suppliers of raw materials, banks providing short-term loans, and other counterparties) give preference to enterprises with a high share of equity capital and greater financial stability.
Thus, a comprehensive analysis based on a system of liquidity and solvency indicators allows business entities to comprehensively characterize the state and need for funds and predict a financial strategy in conditions of economic instability.
One of the main tasks of analyzing the liquidity and solvency of an enterprise is to assess the degree of proximity of the enterprise to bankruptcy - economic insolvency. Financial analysis allows you to identify the threat of bankruptcy and timely implement a system of measures for the financial recovery of the enterprise. There are certain formal and informal criteria by which an enterprise can be declared insolvent.
Insolvency (bankruptcy), according to Art. 2 of the Law of October 26, 2002 N 127-FZ “On Insolvency (Bankruptcy)”, this is the inability of the debtor to fully satisfy the claims of creditors for monetary obligations and (or) to fulfill the obligation to make mandatory payments. When determining the likelihood of bankruptcy, enterprises use a technique called “Second Wind”. In this case, the following indicators are calculated:
1. Solvency ratio:
Payment = TA - PDZ / TO.
If the solvency ratio is less than 2, then the enterprise is considered insolvent according to this indicator.
2. Debt to equity ratio:
Ksoot.sob and loan.sr-v. = SK / TO.
If this coefficient has a value of less than 2, then this also indicates the insolvency of the enterprise.
3. Financial independence ratio:
Kfin.nez. = SC / Cap.
If this coefficient has a value of less than 0.5, then the enterprise is considered insolvent according to this indicator.
4. Provision ratio of own working capital:
Kobesp.SOS = SK + Dol.Act / TA.
If this coefficient is below 0.1, then the enterprise is considered insolvent according to this indicator.
According to this methodology, a decision on the insolvency of an enterprise is made if the sum of the numerical values of the insolvency parameters is less than 4.6, i.e. the sum of the numbers for all four insolvency ratios does not exceed 4.6.
In foreign practice, when analyzing liquidity and solvency, the Altman model is used; it determines the integral indicator of the threat of bankruptcy. This model is commonly referred to as Altman's Z-score. This model is a weighted sum of the ratios of financial indicators. The calculation is based on a five-factor model, which represents a complex coefficient indicator in which the significance coefficients of individual factors in the integral assessment of the probability of bankruptcy are determined. The Altman model has the following form:
Z-score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5,
where Z-score is an integral indicator of the level of threat of bankruptcy;
X1 - the ratio of own working capital to the amount of assets;
X2 - the ratio of retained earnings to the amount of assets;
X3 - the ratio of profit to the amount of assets;
X4 - ratio of equity and borrowed capital;
X5 - asset turnover or the ratio of sales proceeds to the amount of assets.
The higher the Z-score, the lower the likelihood of bankruptcy within two years. Based on the Altman Z-score, four levels of bankruptcy are determined:
1. The probability of bankruptcy is very high when the Z-score value is less than 1.80.
2. The probability of bankruptcy is high when the Z-score is between 1.81 and 2.70.
3. The likelihood of bankruptcy is low when the Z-score is between 2.70 and 2.99.
4. The probability of bankruptcy is very low when the Z-score is 3.00 or more.
In general, assessing the degree of proximity of an enterprise to bankruptcy makes it possible to identify the threat of bankruptcy and timely implement a system of measures for the financial recovery of the enterprise.
Based on the analysis of the obtained indicators, not only the liquidity and solvency of the enterprise is established and assessed, but also work is carried out to improve them. An analysis of liquidity and solvency shows in which specific areas this work needs to be carried out, makes it possible to identify the most important aspects and weakest positions in the financial condition of the enterprise and develop measures to eliminate them. Analysis of the liquidity and solvency of an enterprise is an integral part of financial analysis, which, in turn, is part of a general, complete analysis of economic activity.
In order to timely prevent, identify, and eliminate negative deviations in the liquidity and solvency indicators of an enterprise, it is necessary to regularly conduct an analysis of the property situation, assessment and analysis of the liquidity and solvency of the enterprise, assessment and analysis of the financial stability and probability of bankruptcy of the enterprise.
M.V.Bespalov
Department of Accounting,
analysis and audit
Tambov State
University named after G.R.Derzhavina
1Enterprises operating in a market economy are closely interconnected. When choosing partners, one of the most important criteria for building relationships between business entities is solvency. An insolvent enterprise is unattractive neither to suppliers nor to investors; it creates the threat of losing both its own and attracted resources.
Based on various approaches to assessing solvency, solvency should be interpreted as the ability of an enterprise to timely pay current obligations at the expense of liquid current assets, while carrying out uninterrupted current activities. Assessing solvency as of a certain date is a comparison of current assets and short-term debt. At the same time, an enterprise is considered solvent if there is a positive difference between the amount of liquid current assets and the amount of short-term liabilities, which must be no less than the value of inventories necessary to continue the uninterrupted operation of the enterprise.
The solvency of any Russian enterprise is subject to many negative influences, which at some point reach their “critical mass”. Then these influences are transformed into insolvency, which inevitably leads the business entity to bankruptcy. Analysis of solvency, as in other respects the analysis of any object, is an analysis of a complex of interrelated factors that reduce solvency.
External impact factors include technological advances, general globalization of industrial and financial markets, price fluctuations, tax asymmetries, transaction costs, changes in legislation, increased competition and other factors. Among the internal factors on which the quality level of financial decisions made depends, the need to ensure the liquidity of the enterprise, the aversion of financial management subjects (including shareholders) to risk, the low level of special education of financial managers, and the emerging contradictions between their interests and the interests of the owners.
When assessing the main internal factors affecting the solvency of an enterprise, it is necessary to pay attention to their comprehensive nature, covering objects of analysis, types of activities, personnel qualifications, form of ownership, etc.(1)
The main external factors are factors associated with the steady development of the Russian and world economies as a whole. Globalization of markets, achievements of science and practice, competition, on the one hand, provide business entities with a lot of opportunities, and on the other hand, require closer attention of management at all levels to financial management.
The art of financial management lies in the combination of actions and decisions to ensure the sustainable current position of the enterprise, its solvency and liquidity, as well as development prospects, supported by long-term sources of financing that form the asset structure. Prompt response to changes in external and internal factors is a mandatory requirement for effective financial management. (2)
The purpose of modern financial analysis is to predict unfavorable situations, including the insolvency of an enterprise. To achieve this goal, we propose to distinguish four zones of solvency.
1. Zone of absolute solvency. If an enterprise has sufficient funds to cover current liabilities through current activities or through part of its assets without disrupting the smooth operation of the enterprise, then this business entity is absolutely solvent. In this case, the indicator of absolute solvency is defined as the ratio of the amount of average monthly income (AMI) and cash in current accounts (CA) to the value of current liabilities (CL) and the value of the resulting indicator must be at least one:
Pa = (DSM+DS)/TO ≥ 1
2. Current solvency zone . If the amount of income and cash is not enough to cover current obligations, then it is necessary to move on to a detailed assessment of the enterprise’s mobile assets, among which, first of all, receivables, the payment period for which is expected within 12 months (DS) and short-term financial investments (SFI) represents “deferred” revenue. In this case, the indicator of current solvency is defined as the ratio of the amount of average monthly income (AMI), cash (DC), receivables for which payment is expected within 12 months (DS) and short-term financial investments (SFI) to the value of current liabilities (TO) and the value of the effective indicator must also be at least one:
Fri = (DSM+DS+DZ+KFV)/TO ≥ 1
3. Zone of critical solvency . Further, assessing the availability of mobile funds of the enterprise, it is obvious that a significant share in their value is occupied by inventories, most of which (the entire value, if it is optimal) cannot be taken into account at the next stage of assessing solvency, since this will disrupt the uninterrupted operation of the enterprise. In this case, the indicator of critical solvency is defined as the ratio of the difference between the amount of average monthly income (AMI) and the value of current assets (TA) minus the amount of reserves necessary for the uninterrupted operation of the enterprise (Zn) to the amount of current liabilities and the value of the effective indicator is equal to one:
Pk = (DSM + (TA - Zn)) / TO = 1
4. Insolvency zone. If, when calculating the critical solvency indicator, its value is less than one, then this indicates a lack of average monthly income and the amount of “free” mobile assets to cover current obligations and the enterprise becomes insolvent. Our proposed methodology for assessing the solvency of a business entity does not provide for further in-depth analysis of the enterprise’s assets, i.e. their immobilized part, although theoretically this is actually possible.
It is obvious that the solvency of an enterprise can be controlled. It is necessary to take into account that the problems of maintaining the solvency of an economic entity are associated with solving a number of problems of operational and strategic management of the enterprise.
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