In the world there are a lot of enterprises that manufacture various products and goods or offer their services. How do they stay afloat? How can entrepreneurs promote and develop their organizations? For this, there is such a thing as an analysis of the financial stability of an enterprise.
What is financial stability?
Financial stability characterizes the organization in its financial plan, because the result of absolutely any organization depends on the presence in it of a certain amount of finances and their proper distribution. Specifically, sustainability means financial stability, the ability (or inability) to provide an enterprise with enough finance and other necessary resources. It also denotes the efficiency of the use of funds, the functioning and communication with other financial enterprises, and the very stability and reliability of the company.
By modifying the above definitions, you can reveal the definition of financial stability, emphasizing the similar characteristics of the enterprise, which indicate its stability. Thus, a financially sustainable enterprise will work in accordance with its goals.
Firms are constantly faced with various difficulties and consequences that do not make it clear whether this organization is achieving its goals.
The impact of this uncertainty on business models is called risk. It manages risk through identification, analysis and assessment with the goal of changing it through the implementation of disposal procedures. Accountants and analysts, working together and taking into account data from loss reports, can prevent such crisis moments as, for example, bankruptcy.
Depending on their condition, financial stability is divided into types:
- Absolute. If the company has sufficient funds for further work, while it is independent of debts and creditors, then it can be called absolutely financially stable.
- Sustainable. It provides the enterprise with necessary cash and resources, is in a state of relative stability.
- Unstable. Inability to pay financial bills on time, to provide the organization with the necessary funds and resources for functioning.
- Crisis. Simply put, this is a condition also called bankruptcy. It means a complete loss of the ability to maintain the financial condition of the enterprise and continue entrepreneurial activity.
To determine the state of the organization, each entrepreneur needs to know how to do this. With this helps to determine the financial stability of the organization. Management is engaged in it, whose task is to ensure stable stability. He also analyzes the entire work of the enterprise. Typically, research takes place in the following areas:
- analysis of profit indicators in full;
- study of profitability indicators;
- analysis of financial stability and stability in the sales market;
- research on the efficiency of using capital and the product sold or the services provided.
An analysis of all these criteria is carried out by a business analyst. Its task is to determine, study the state of the company, predict and develop new business models. The main function of the analysis of financial stability of an enterprise is to eliminate shortcomings so that they do not lead to a crisis state. This goal is the main one, because the future and reputation of the organization, as well as its work and functioning, depend on it.
Financial sustainability, in turn, guarantees high company productivity and fulfilling planned tasks. A normally functioning enterprise can be called one that can independently pay for its financial needs and perform the services offered.
Preliminary stability analysis
Before performing analytical work, it is necessary to give a preliminary assessment of the current state of the company in order to avoid subsequent problems with analysis. To do this, you must:
- assess the current situation, including property;
- discuss the conditions on which the company operates;
- to analyze the results already achieved;
- to engage in the development of new goals, analysis of the prospects of the organization.
Such a methodology for analyzing financial stability is extremely important for each enterprise; they can also be indicated in regular financial statements. Each of them should show the full effectiveness and prospects of the organization. However, such reports may also include an article on losses if the company's productivity declined and the financial situation suffered. In such cases, the company begins to conduct various analyzes in its work and to eliminate the "malfunctions" that have arisen.
Definition of economic potential
The economic potential of each organization can be viewed from two sides: property and financial. They are invariably interconnected, because the deterioration of property potential leads to a decrease in financial, and vice versa.
In the process of functioning of the enterprise, it is very important to correctly distribute assets, because the future financial condition depends on their investment. To do this, some categories of analysis again appear in the world of entrepreneurs - vertical and horizontal.
Vertical analysis exists in order to characterize the structure and sources of funds of the enterprise. It is also used to evaluate the impact of inflation and make regular comparisons of your company with competitor organizations, plan on getting investments in the future, work on the company's reputation for investors and potential buyers.
Horizontal analysis is aimed only at working with analytics, it is used to compile analytical tables. They usually indicate the growth rate in a certain period, which helps not only analyze the actions of organizations, but also make forecasts of their development.
In addition, there is such a thing as trend analysis. It allows you to compare each reporting position with the positions of a number of previous periods and freely determine the future of the company. Factor analysis evaluates factors (positive and negative) that affect the development of the organization.
These analyzes are interrelated and have similar benefits. Their interaction is extremely useful for comparing the actions of the company, determining its condition. They can effectively determine the current position of the company, taking into account the main indicators of the analysis of financial stability of the enterprise.
Criteria and indicators
There are really many such indicators, which allows analysts to evaluate the actions and effectiveness of the company from different angles. The data of these indicators may be called the analysis of financial stability ratios. The following coefficients are distinguished:
- Autonomy of the organization. That is, the ratio of the organization’s own capital to the total amount of capital. It is also called the coefficient of independence.
- Capitalization ratio. It characterizes the amount of the payable contribution and the company's own revenues, their interactions and mutually beneficial models.
- Asset coverage ratio. This is the definition of the ability to pay debts and loans from existing assets. This ratio calculates which part of the assets will be used to pay debts. It also helps to analyze liquidity and financial stability.
- Investment coverage ratio. Shows how the company operates through regular investments.
To create an example of analysis of financial stability, it is necessary to use detailed tables and schemes, which will necessarily include the following changes:
- the total value of the property;
- non-current or current assets;
- the value of intangible assets, fixed assets, financial investments;
- value of inventories and receivables;
- some short-term financial investments, as well as an analysis of existing assets and other cash.
Accounting Analysis
This analysis provides a basic supply of information about the financial system. On its basis, mandatory compilation of business models, forecasting and evaluation of all important indicators are carried out. The structure of companies is formed, taking into account all accounting reports, including the analysis of financial stability.
The main advantage of doing accounting is that the data contained in the report, as a rule, are relatively reliable. Analysis of records is always carried out according to special accounting principles, therefore all information has a fairly high degree of reliability, however, the presence of some defects is still allowed. This allows companies to accurately predict their future actions without serious risks and to analyze the solvency and financial stability of the enterprise.
However, for the full reliability of such reports, it is necessary to perform several actions: verify (officially confirm) the financial (accounting) statements and regularly make adjustments to the information. Only then will all the calculations be truly correct.
Types of financial analysis
Analysis of the financial stability of the organization is divided into two types: external and internal.
Internal analysis is carried out, as a rule, by the internal organs of the enterprise. Its results are usually used to monitor the financial situation in the company, predict future developments and so on. The purpose of this analysis is the correct and stable flow of funds to the organization’s budget. After all, financial resources are extremely important for running any business.
An external analysis is carried out by investors, auditors, suppliers of various types of resources, as well as various control bodies using public reporting. Both internal and external analysis strongly affect the activities of the organization.
The peculiarity of these reports, according to the course analysis of financial stability, is that each of them, together and separately, presents for attention a certain picture of the state of the organization, its finances, and also the general state of affairs.
Methods of financial analysis
The techniques and methods by which business analysts classify financial stability analysis indicators can be divided into the following categories:
- The degree of formalization. It, in turn, is divided into formalized methods and non-formalized. The former were and are the main methods when it comes to financial stability. Unformalized ones are based on the opinions of experts, workers and analysts and simply describe some analytical techniques.
- The degree of instrumentation. That is, economic, mathematical methods of statistics and optimal programming, which are also divided into many subgroups.
The author of the course about the analysis of the financial stability of the enterprise must indicate that for a complete description it is not enough to have knowledge of only certain methods of this analysis. It is important for the entrepreneur to have qualified personnel who can do new developments and implement them. In addition, it is necessary to provide the company with modern computer technology.
On financial stability in general
A qualitatively conducted analysis of the financial and economic aspects of the functioning of the enterprise helps to evaluate the work performed and correctly predict the changes in order to get the greatest profit. For this, they analyze the assessment of financial stability, which is why it is the main priority for each entrepreneur.
The financial resources owned by each company must comply with market rules. They also show the needs or their absence for each enterprise.
External factors of influence
The functioning of the enterprise in many respects depends on the quality of the product or services provided, as well as on the service, timeliness of its work and the total capital of this organization. All these mandatory points must carry certain information about their actions, that is, be justified by something. For this, there are many analyzes to determine the effectiveness and significance, as well as to make forecasts of the future organization and provide customers with good products.
With a quality analysis of financial stability indicators, the company will be able to be competitive in the product market. However, there are many external factors that directly affect the financial stability of organizations. They can be:
- The economy in the country. Any enterprise, even privatized, will depend on the economic condition of the country. With the collapse of the economy, risks such as low liquidity and solvency are possible, and in extreme cases bankruptcy can not be avoided.
- Competitiveness. This concept has always been popular among entrepreneurs: if your product is competitive, then the organization is worth attention. However, you must always fight, push your product or service forward and maintain the organization’s potential. Also, it may be affected by the insufficiently high quality of the product, so customers will give preference to stronger entrepreneurs.
- Macroeconomics in the country. In addition to the strong influence of the economy, macroeconomics are also worth considering. Changes in the exchange rate, the influence of foreign economic relations in the country - all this will affect the state of the enterprise.
- Inflation. In addition to the influence of the currency, inflation is quite significant. It greatly destabilizes the state of the organization, including the financial one.
- Policy. The business situation is also directly affected by the political situation in the country. Any laws or reforms may affect the operation of the enterprise in the future. Or, consumer protection rights will come into force, which can also greatly undermine the company's reputation.
One or even several of the above factors may well put an end to doing business. To prevent this from happening, there are stability analyzes of both the financial condition of the company and its competitors.
findings
Finances have always been the key to quality goods, identifying profitable contracts and transactions, characteristics of all organizations and enterprises.
Each company conducts many analyzes daily, draws up business development models, determines prospects for the future, comes up with plans based on the analysis of solvency and financial stability.
Thus, financial stability is one of the main characteristics of any business entity. It allows you to determine the competitiveness of the enterprise, its current and potential stability and reliability. All this helps to choose your development strategy in advance.
However, the costs that are allocated for all analyzes are sometimes extremely high. After all, their cost also includes remuneration for employees hired by specialists and business analysts, whose labor in the modern market is rated quite high.
This is how complicated any enterprise can be. If the organization works correctly, then at the outlet it provides customers with a quality and unique product. Clients, in turn, improve the reputation of the company, leaving positive feedback about it, and they are able to attract other consumers.