Assessment of the financial condition of the organization is carried out using a system or set of ratios. These indicators are designed to characterize financial stability and be responsible for the stable position of the company.
The financial position of the entity can be considered stable in the event that it can cover up to 50 percent of financial resources from its own funds. At the same time, the enterprise must effectively use these resources, observe settlement, credit and financial discipline and be solvent. The financial condition of the company can be said after the analysis of liquidity, assessment of financial stability and solvency.
The financing ratio shows the economic stability of the economic environment in which the company carries out its core business. Its functioning results, effective and active response to any changes in external and internal factors are taken into account.
The financial stability of any company should be based on a stable excess of income over expenses, efficient use of funds, and a continuous production process. The financing ratio is calculated based on the production and economic activities of the subject, and is one of the main indicators of the stability of the enterprise.
How correctly the company manages its financial flows as of a certain date, allows you to characterize the appropriate analysis of the sustainability of financing. In this case, it is very important that finances comply with market requirements, and must meet the strategic directions of the development of the business entity.
To assess the current economic situation and serves as a financing ratio calculated by the ratio of own sources to borrowed funds of the enterprise on the basis of the balance sheet. This indicator should determine in what proportion the assets consist of equity. This factor characterizes the independence of the business entity from external financial sources.
Given the favorable economic situation of the enterprise, the financing ratio should be greater than one. If the indicator value is less than one, there is a risk of insolvency. And it will be extremely difficult for the company to get a loan in banking institutions.
Another important indicator of assessing the efficiency of the enterprise is the coefficient of sustainable financing. It is determined by the ratio of the total amount of long-term liabilities and equity to the currency of the balance sheet.
This indicator reflects that part of the enterprise’s assets that can be financed from permanent sources. In other words, the share of sources of financing that have been used for a long time in economic activity.
One of the main goals of any enterprise should be ensuring stability of activity for the long term. Achieving positive financial results is possible only with low dependence on investors and lenders. Today, there is such a tendency that own funds are invested in production in minimal amounts, and the main “infusion” of finances is carried out at the expense of borrowed funds. That is why special importance is attached to the indicator of financing sustainability. Indeed, only this coefficient will show the dependence of the enterprise on external financial sources. In addition to using this ratio, financial stability analysis can be carried out using indicators of “net assets”.