The activities of the enterprise can be analyzed on the basis of certain indicators. They are calculated in order to determine how efficiently the functioning of a business entity is, whether it is advisable to resort to lending to activities and what are its future prospects.
One of the most important areas of analysis is financial stability, which characterizes the ability of an enterprise to independently finance its activities. The level of sustainability is determined by a number of indicators, based on the calculation of which they draw conclusions about the reliability of a business entity.
Equity ratio is an indicator from the group of those that characterize financial stability. It is defined as the ratio of own capital to circulating assets of the enterprise:
Kos = SOK / OS,
where JUICE is the value of equity capital
OS - the value of working capital.
Equity is an indicator that is the difference between equity and the value of fixed assets:
JUICE = SK-NoA,
where SK is the amount of equity,
NoA - non-current assets.
Sometimes, in order to more accurately determine own net worth capital, the value of fixed assets is deducted from the sum of equity, deferred income and the provision for future expenses. But, as a rule, this is applicable for large enterprises, because in the small and medium-sized businesses when compiling the balance, the last two indicators are predominantly absent.
The ratio of own funds indicates its ability to finance activities at the expense of working capital, without resorting to borrowed funds. The optimal result is when the value of the indicator is more than 0.1. Sometimes this indicator is also defined as the ratio of working capital security. The algorithm for its calculation is identical to the technique of the described indicator.
Along with this, there is also a coefficient of provision with own working capital. It is found by dividing its own turnover capital by the amount of reserves (the value is taken from form 1 of the financial statements - balance sheet):
Goats = SOK / Zap, where Zap is the value of stocks.
This indicator, as well as the ratio of own funds, reflects the degree of stability of the enterprise and demonstrates how much material resources are covered by sources of financing of the enterprise itself. Its recommended value should exceed 0.5, although the larger the coefficient value, the better for the enterprise. In practice, this happens quite rarely.
There are cases when the values of these coefficients can be negative. This occurs when fixed assets exceed equity. Then the indicator of equity is negative, which, in turn, is reflected in all the results of the calculation. This situation at the enterprise indicates that not only working capital, but also fixed assets are covered by borrowed funds.
The equity ratio is primarily calculated for manufacturing enterprises, because they have large stocks and the main source of financing is working capital. Such indicators are mainly interested in partners and investors, because they provide an opportunity to assess the reliability of the enterprise.