Any entrepreneur will agree that creating an enterprise is not as difficult as setting up a production that provides a steady and considerable income. To be sure that the business is developing and making a profit, periodically assess the financial condition of the enterprise. This concept includes a whole system of interacting elements that control all the funds of the enterprise.
The assessment of factors such as profitability, financial stability and liquidity and others is necessary for banks, which determine the solvency of the enterprise in order to identify the most suitable method of lending and interest rate.
The financial condition of the enterprise is affected by all of its areas of activity. The key to obtaining a good and stable profit for any organization is the regular release of high-quality and competitive products that are in demand on the modern market. There are two ways to assess financial condition: external and internal analyzes. So, for example, the external analysis necessary for reporting to regulatory authorities, partners, and others, includes the following types of analysis:
- profit analysis,
- financial stability and liquidity, solvency and stability are determined,
- profitability analysis,
- analysis of the effectiveness of borrowed funds and others.
One of the main types of external analysis is rightfully considered the definition of liquidity, solvency and related areas. The liquidity of an enterprise is determined by the speed with which it is possible to sell its assets and gain financial resources. It is determined by the value of highly liquid assets in relation to short-term debt. When analyzing liquidity, both current and future changes in the above ratio are evaluated.
Liquidity is considered low if the enterprise does not have enough incoming funds. Profit from economic activities, as well as the amount of finance remaining after payment of obligations and dividends, are the determining factors in determining the financial capabilities of an enterprise. That is why liquidity and solvency are interconnected: the first determines the possibility of timely repayment of debts with their own payment deadlines. Obviously, for any bank, organizations and partners dealing with this enterprise, it is advisable to know the solvency forecasts not only at the current moment, but also in the near future.
If current assets are larger than short-term liabilities - this indicates the liquidity of the enterprise. The solvency of the company includes a comparison of assets with short-term and long-term liabilities.
To determine liquidity means to analyze the liquidity balance sheet, that is, the degree to which assets exceed liabilities. In this case, both assets and liabilities are taken into account , and they share the concepts of quickly realized and slowly realized assets.
High liquidity means that the company can not only pay off the necessary obligations, but also pay off debts to third parties much faster.
In addition to liquidity, it is very important to find out the financial stability of the enterprise, which is responsible for solvency with a future perspective. Assessment of financial stability is carried out to determine the stability and financial independence of the enterprise, as well as determine the effectiveness of capital in accordance with the originally declared economic activity.
Obviously, not a single enterprise wishing to optimize its work will refuse to conduct the above analyzes. Indeed, with their help, it is possible to conduct a review of business activities to preserve the value of existing assets and prevent their decline.