Analysis of the liquidity of the balance sheet, solvency and financial stability of the enterprise

An enterprise can be liquid to one degree or another, since current assets include the most diverse working capital, among which there are both easy to sell and hard to sell.

The task of analyzing the liquidity of the balance sheet arises in connection with the need to assess the creditworthiness of the enterprise, that is, its ability to pay off all its obligations in a timely and complete manner [28, c.569].

The liquidity of the balance sheet is defined as the degree to which the organization’s liabilities are covered by its assets, the period of transformation of which into money corresponds to the maturity of the liabilities. Liquidity of the balance sheet should be distinguished from the liquidity of assets, which is defined as the reciprocal of the time required to convert them into cash. The less time it takes for this type of asset to turn into money, the higher their liquidity.

The liquidity of assets is the ability of assets to be transformed into cash, and the degree of liquidity is determined by the length of the time period during which this transformation can be carried out. The shorter the transformation period, the higher the liquidity of assets.

At the same time, obligations of varying degrees of urgency are usually allocated as part of short-term liabilities. Hence, one of the ways to assess liquidity at the preliminary analysis stage is to compare certain elements of an asset and a liability with each other. To this end, the obligations of the enterprise are grouped according to their degree of urgency, and its assets – according to the degree of liquidity (speed of possible implementation). Thus, the most urgent obligations of the enterprise (which are due in the current month) are compared with the value of assets with maximum liquidity. At the same time, part of the term liabilities that remain unsecured should be balanced by less liquid assets – accounts receivable from enterprises with a stable financial position, easily marketable inventories. Other short-term liabilities are related to assets such as debtors, finished goods, inventories, etc.

Analysis of the liquidity of the balance sheet consists in comparing the funds of the asset, grouped by the degree of their liquidity and arranged in descending order of liquidity, with the liabilities of the liability, grouped by their maturity and arranged in ascending order of maturity.

When determining the liquidity of the balance sheet, asset and liability groups are compared with each other.

Absolute balance liquidity conditions:

A 1 ³P 1; A 2 ³P 2; A 3 ³P 3; A 4 £P 4

A necessary condition for the absolute liquidity of the balance sheet is the fulfillment of the first three inequalities, the fourth inequality is of the so-called balancing nature: its fulfillment indicates that the enterprise has its own working capital.

If any of the inequalities has a sign opposite to that fixed in the optimal variant, then the liquidity of the balance differs from the absolute one.

At the same time, the lack of funds in one group of assets is compensated by an excess in another, but in practice, less liquid funds cannot replace more liquid ones.

Comparison of liquid funds and liabilities allows you to calculate current liquidity indicators that indicate the solvency (+) or insolvency (-) of the organization.

Let’s analyze the indicators of assets and liabilities of the balance sheet given in Table 3.

Table 3 – Table of liquidity indicators for 2012-2014

Name of indicator The value of the indicators as of December 31
2012 2013 2014
The most liquid assets – A1
Marketable assets – A2
Slow selling assets – A3
Hard-to-sell assets – А4
The most urgent obligations – P1
Short-term liabilities – P2
Long-term liabilities – P3
Permanent liabilities – P4

Table 4 shows the normative and calculated ratios between the value of assets and liabilities according to the enterprise.

The analysis of the given data allows us to conclude that the liquidity of the balance sheet during the entire period under review differs from the absolute one.

Comparison of the most liquid assets with the most urgent liabilities allows you to determine the current liquidity of the enterprise. At the analyzed enterprise, this ratio does not satisfy the condition of an absolutely liquid balance.

Table 4 – Liquidity indicators of the balance sheet of JSC “Hydrometallurg”

for 2012-2014

Absolutely liquid balance The ratio of assets and liabilities of the balance sheet as of December 31
2012 2013 2014
A1>P1 A1 A1 A1
A2>P2 A2 A2>P2 A2>P2
A3>P3 A3>P3 A3>P3 A3>P3
A4 A4>P4 A4>P4 A4>P4

This means that in the nearest to the moment under consideration, the organization will not be able to improve its solvency. During the analyzed period, the payment deficit of the most liquid assets to cover the most urgent liabilities increased from 147,709 thousand rubles. up to 260,000 thousand rubles.

Comparison of marketable assets with short-term liabilities show a tendency to increase or decrease current liquidity in the near future. Current liquidity indicates the solvency (+) or insolvency (-) of the organization for the closest period of time to the considered moment.

The current liquidity indicator takes a negative value in the last period – current liquidity at the end of 2012 = (A1 + A2) – (P1 + P2) u003d -177058 thousand rubles. rub., which indicates an increased risk of insolvency of the organization over the next 12 months.

Comparison of slow-moving assets with long-term liabilities reflects prospective liquidity. JSC Hydrometallurg has a payment surplus for this type of balance sheet liquidity as of January 1, 2015 in the amount of 94,963 thousand rubles.

Since at the end of 2014 the second inequality corresponds to the condition of absolute liquidity of the balance sheet (A2>P2), then when JSC Hydrometallurg repays short-term receivables, the company will be able to repay its short-term liabilities and liquidity will be positive. It can be noted that compared to 2012, the situation has not changed significantly. Based on this, it is possible to characterize the liquidity of the balance sheet of JSC Hydrometallurg as unsatisfactory.

In market conditions, when the economic activity of the enterprise and its development is carried out at the expense of self-financing, and in case of insufficiency of own financial resources – at the expense of borrowed funds, an important analytical characteristic is the financial stability of the enterprise.

Solvency is an external manifestation of financial stability. Solvency is the ability of an enterprise to timely and fully fulfill its payment obligations arising from trade, credit and other payment transactions. The assessment of the solvency of the enterprise is determined on a specific date.

Financial stability is a certain state of the company’s accounts, which guarantees its constant solvency. As a result of the implementation of any business transaction, the financial condition of the enterprise may remain unchanged, either improve or worsen. The flow of daily business transactions is, as it were, a “disturber” of a certain state of financial stability, the reason for the transition from one type of stability to another. Knowing the limiting boundaries of changes in sources of funds to cover capital investment in fixed assets or inventories allows you to generate such flows of business transactions that lead to an improvement in the financial condition of the enterprise, to increase its sustainability.

The task of financial stability analysis is to assess the size and structure of assets and liabilities. This is necessary to answer the questions: how independent is the organization from a financial point of view, is the level of this independence growing or decreasing, and whether the state of its assets and liabilities meets the objectives of its financial and economic activities [13, c.89].

In practice, different methods of financial stability analysis are used. Let’s analyze the financial stability of the enterprise using absolute indicators.

Let us analyze the coefficients characterizing the financial stability of JSC Hydrometallurg, presented in Table 5.

Table 5 – Dynamics of indicators of financial stability of JSC “Hydrometallurg” for 2012-2014

Coefficient Calculation formula Norm. limitation The value of the indicators as of December 31
2012 2013 2014
1. Balance currency, thousand rubles WB
2. Own capital, thousand rubles. SC
3. Fixed assets, thousand rubles PA
4. Own. working capital, thousand rubles SOS=SC-PA -105477 -77797 -89609
5. Borrowed capital, thousand rubles. ZK
6. Current assets, thousand rubles TA
7. Coefficient of autonomy (concentration of own capital) UK/WB >0.6 0.46 0.34 0.48
8. Equity flexibility ratio SOS/SC 0.5 -0.55 -0.36 -0.36
9. The coefficient of the ratio of own and borrowed funds ZK/SK one 1.17 1.91 1.08
10. Equity ratio SOS/TA one -0.90 -0.23 -0.49

A general indicator of financial stability is the surplus or shortage of sources of funds for the formation of reserves and costs, which is determined as the difference in the value of sources of funds and the value of reserves and costs.

Based on the goals set in this paper, it is more acceptable to use relative indicators for analyzing the financial condition.

Along with absolute indicators, the financial stability of the organization is also characterized by financial ratios.

The coefficient of autonomy (financial independence), which determines the degree of independence of the enterprise from external sources of financing and characterizes the share of own funds in the balance sheet, ~AEMacro(If(F,7,first,=,F,7,last){has not changed and amounted to}) ~ AEMacro(If(F,7,first,<,F,7,last){increased from 2012-2014 from }) ~AEMacro(If(F,7,first,>,F,7,last){ decreased in the analyzed period from }) ~AEMacro(IfCell(F,7,first,<>,F,7,last,F,7,first,#,##0.000){0,46}) ~AEMacro(If( F,7,first,<>,F,7,last){ to }) ~AEMacro(Cell(F,7,last,#,##0.000){0.48, but did not reach the standard value}).} ) ~AEMacro(If(F,7,last,>=,0.8){ If the coefficient exceeds the recommended range of values, it may indicate an inability to effectively attract credit resources.}) ~AEMacro(If(F,7,first,>,F,7 ,last){ A decrease in the coefficient indicates a decrease in the financial independence of the enterprise.}) ~AEMacro(If(F,7,first,<,F,7,last){ An increase in the coefficient indicates an increase in the financial stability of the enterprise.

The coefficient of maneuverability of equity capital during the entire period under review was below the normative value, however, in 2013 and 2014 there was a slight increase in its value compared to 2012, when its value was 0.36.})

The value of the ratio of borrowed and own funds indicates that at the end of 2012 the company attracted for every 1 rub. own funds invested in assets, 1.17 rubles. borrowed money. Over the course of 3 years, the attraction of borrowed funds gradually decreased – to 1.08 rubles. for every 1 ruble of own investments in 2014. The downward trend in borrowings for JSC Hydrometallurg is a positive moment and may reduce the company’s dependence on borrowed funds in the future .

The equity ratio at the end of 2012 had a value of -0.9, that is, the enterprise is poorly provided with its own working capital. By the end of 2014, this coefficient increased and acquired a value of -0.49, with a norm of at least 1.0. This is due to the insufficiency of own working capital of JSC “Hydrometallurg”. And since in absolute terms the amount of the increase in own working capital was not significant, if this trend continues, the enterprise will not be able to improve financial autonomy in the future.

The liquidity of an enterprise is the ability to return the funds received on credit on time, or the ability of working capital to turn into cash, necessary for the normal financial and economic activities of the enterprise.

For a comprehensive assessment of liquidity as a whole, a general liquidity indicator should be used. With the help of this indicator, an assessment is made of changes in the financial situation in the organization in terms of liquidity. This indicator is also used when choosing the most reliable partner from a set of potential partners on the basis of reporting.

Various indicators of liquidity not only characterize the stability of the financial condition of the organization with varying degrees of accounting for the liquidity of funds, but also meet the interests of various external users of analytical information. For example, for suppliers of raw materials and materials, the absolute liquidity ratio is most interesting. Buyers and shareholders of the enterprise to a greater extent assess the solvency of the current liquidity ratio.

Based on the data of the balance sheet of JSC Hydrometallurg, the coefficients characterizing solvency have the values given in Table 6.

Table 6- Table of liquidity indicators for 2012-2014

Name of indicator Formula Standard value The value of the indicators as of December 31 Deviations, (+,-)
2012 2013 2014 from 2012 from 2014
Current liquidity, thousand rubles -177058 -201467 -183897
Prospective liquidity, thousand rubles
~AEMacro(TitleRow(F,2){Absolute Liquidity Ratio}) K1=A1: (P1+P2) K1>=0.2 to 0.7 0.0001 0.0014 0.0158 -0.1999 -0.1842
~AEMacro(TitleRow(F,3){Term liquidity ratio }) K2= (A1+A2)/ (P1+P2) K2>=1 0.2051 0.5134 0.3230 -0.7949 -0.6770
~AEMacro(TitleRow(F,4){Current liquidity ratio }) K3= (A1+A2+ +A3)/ (P1+P2) K3>=2, min 1 0.5270 0.8126 0.6729 -1.4730 -1.3271

The coefficient of current, or general, liquidity characterizing the general provision of the enterprise with working capital for conducting business activities and timely repayment of urgent (current) obligations of the enterprise, ~AEMacro(If(F,4,first,=,F,4,last){ has not changed. }) ~AEMacro(If(F,4,first,<,F,4,last){increased in the period under consideration from 0.5270 }) ~AEMacro(If(F,4,first,>,F,4,last ){decreased from }) ~AEMacro(Cell(F,4,first,#,##0.000){0,527000,~AEMacro(If(F,4,first,<>,F,4,last ){and up to 0.6729}) ~AEMacro(Cell(F,4,last,#,##0.000){0.6728,}) remaining below the standard value~AEMacro(If(F,4,first,<> ,F,4,last){}) ~AEMacro(IfCellDelta(F,4,first,<>,F,4,last,F,4,first,F,4,last,m%)rem}) ~AEMacro (If(F,4,first,<>,F,4,last).}) ~AEMacro(If(F,4,last,>=,3){ Since the standard value is between 1.0 and 2.0, then this enterprise has more funds than it can effectively use, which entails a deterioration in the efficiency of the use of all types of assets ov.}) ~AEMacro(If(F,4,last,=,2){ Since the normative value is in the range from 1.0 to 2.0, this enterprise has favorable conditions for lending to the enterprise.}) ~AEMacro (If(F,4,last,=,1){ Since the standard value is in the range from 1.0 to 2.0, then this enterprise has favorable conditions for lending to the enterprise.}) ~AEMacro(If(F,4 ,last,<,1){ The value of the indicator indicates an insufficient level of coverage of current liabilities by current assets and general low liquidity. This may indicate difficulties in the sale of products and problems associated with the organization of supply.}) ~AEMacro(If(F,4,first,<,F,4,last){The positive trend in this indicator over the analyzed period increased the likelihood of repaying current liabilities at the expense of inventories, finished products, cash, receivables and other current assets.

Quick liquidity ratio (quick liquidity ratio), reflecting the share of current liabilities covered by cash and the sale of short-term securities, ~AEMacro(If(F,3,first,=,F,3,last){unchanged and amounted to } ) ~AEMacro(IfCell(F,3,first,=,F,3,last,F,3,last){0,09}) ~AEMacro(If(F,3,first,<,F,3,last ){increased in the analyzed period from }) ~AEMacro(If(F,3,first,>,F,3,last){decreased in the analyzed period from }) ~AEMacro(IfCell(F,3,first,<>, F,3,last,F,3,first,#,##0.000){0,2051}) ~AEMacro(If(F,3,first,<>,F,3,last){ and up}) ~ AEMacro(Cell(F,3,last,#,##0.000){0,3230. }) ~AEMacro(If(F,3,last,<,0.4){A low ratio is an indication of high financial risk and lack of opportunity to attract additional funds from outside due to difficulties in repaying current debts.}) ~AEMacro(If(F,3,last,>=,1){ A high coefficient value indicates low financial risk and good opportunities to attract additional additional funds from the outside due to the lack of difficulties with the repayment of current debts.})

Absolute liquidity ratio, reflecting the share of current liabilities covered exclusively by cash, ~AEMacro(If(F,2,first,<,F,2,last){increased in the analyzed period from }) ~AEMacro(If(F, 2,first,>,F,2,last){decreased in the analyzed period from }) ~AEMacro(If(F,2,first,=,F,2,last){did not change in the analyzed period and amounted to }) ~ AEMacro(IfCell(F,2,first,<>,F,2,last,F,2,first,#,##0.0000){0,0001}) ~AEMacro(If(F,2,first,<> ,F,2,last){ and up to }) ~AEMacro(Cell(F,2,last,#,##0.0000){0.0158 with a recommended value of 0.2 to 0.7~AEMacro(If(F ,2,first,<>,F,2,last)}) ~AEMacro(IfCellDelta(F,2,first,<>,F,2,last,F,2,first,F,2,last,m% }) ~AEMacro(If(F,2,first,<>,F,2,last).}) ability}) ~AEMacro(If(F,2,first,>,F,2,last){loses ability}) to immediately repay current liabilities at the expense of cash, but these funds are extremely insufficient for the enterprise.

Thus, in this area of analysis, we can conclude that the solvency of the enterprise is at a level below the optimum, and the trend of recent changes indicates a likely increase in solvency in the future.

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