Formation of stocks and costs.

Type of financial stability of the enterprise

The analysis of the financial condition from this side is based on identifying the sufficiency (surplus or shortage) of sources of funds for the formation of reserves and costs of the enterprise, that is, the relationship between individual types of balance sheet assets and sources of their coverage in the balance sheet liability is revealed. Depending on what type of sources of funds are used to form stocks, one can judge the level of solvency of the enterprise.

To characterize the sources of formation of reserves and costs, several indicators are used that reflect the different degree of coverage of different types of sources and summarize them in table 3.

Table 3 Indicators of the adequacy of sources of funds

For the formation of stocks and costs

Indicators Calculation formula Definition
1. Own working capital, (SOS) SOS = str490–str190 [3] (according to formula 1) The difference between equity and non-current assets. The increase (SOS) in dynamics is a positive trend. If (SOS) > 0, then there is no shortage of working capital. The enterprise has more permanent sources (resources) than it is necessary to finance permanent assets. If (SOS) < 0, then the enterprise has a lack of own working capital, i.e. its permanent liabilities are insufficient to finance its permanent assets.
2. Own and long-term borrowed funds (DOS) SDOS = SOS+str590 [3] (according to f.1) The difference between own and long-term borrowed funds and non-current assets. The absolute indicator characterizes the presence and amount of working capital of the enterprise, which (unlike short-term liabilities) cannot be claimed at any time. Traditionally, a decrease in (SDR) is assessed as a negative phenomenon, and an increase as a positive one, but a situation is quite possible when a decrease in SDR is caused by the repayment (repayment) of long-term loans and credits. In this case, the reduction of SDS is a financial achievement of the enterprise.
3. The total value of the main sources of formation of reserves and costs of the enterprise, (OOS) OOS=SDOS+str610+str621+str622+str627 [3] (according to f.1) It characterizes the sufficiency of normal sources of formation of reserves and costs. The increase in OSA is a positive trend and can be additionally achieved (except for measures to increase SOS and SOS) by attracting more commodity loans and advances for work and orders, or by minimizing various types of non-current assets.
4. Reserves and costs (ZIZ),z ZIZ=str210+str220 [3] (according to f.1) It characterizes the presence of stocks and costs in an unfinished state for normal financial and economic activities. The ZIZ value should be optimal for the enterprise. Excessive increase in ZIZ indicates problems with sales, large balances of finished products and goods, significant storage costs for their maintenance. A sharp decrease in PHI is indicative of supply problems that could lead to a halt in production
5. Financial indicator F1, F1 = SOS – ZIZ [3] Reflects the adequacy of the SOS to finance the PHI.
6. Financial indicator F2, F2 = SDOS – ZIZ [3] Reflects the sufficiency of the VMS to fund the PHI.
7. Financial indicator F3, F3 = OOS – ZIZ [3] Reflects the sufficiency of the CAB to finance PHI.

Depending on the values of financial indicators F1, F2, F3, four types of financial stability of the enterprise are distinguished. Their characteristics are summarized in table 4.

Table 4 Types of financial stability of an enterprise

Type of financial stability Values of financial indicators F1, F2 and F3 Definition
Absolute stability F1 > 0 F2 > 0 F3 > 0 The enterprise has a surplus of all sources of the formation of PPE, has solvency at any time and does not allow delays in settlements and payments.
Normal (relative) stability F1 < 0 F2 > 0 F3 > 0 The company has a relatively stable financial position in the market. Has a surplus of SOS and SOS and experiences (perhaps only periodically) a lack of SOS. Such an enterprise has solvency, but is forced to resort to long-term borrowed sources of financing to pay priority payments.
Unstable financial condition F1 < 0 F2 < 0 F3 > 0 It is characterized by periodically arising delays in obligatory payments and settlements, debts to employees for wages, a chronic shortage of “live” money. There is a lack of SOS and SDS. This state is borderline between normal (relative) stability and financial crisis, and this line is quite fragile. The forecast is as follows: if the enterprise manages to achieve an increase in the indicators of SOS or SOS, then its solvency will be guaranteed. If there is a deterioration in the environmental protection index, or the index of the PHI increases sharply, then a crisis is inevitable.
Crisis financial condition Ph1 < 0 Ph2 < 0 Ph3 < 0 Crisis symptoms: lack of all kinds of sources (resources); inability to secure creditors’ claims; blocked account and debts to the budget; off-budget funds; by their employees; Settlement and barter settlements. All management decisions should be aimed at increasing the SOS, SOS, and OOS while reducing the PHI.

The first signals of growing insolvency are a constant decrease in the dynamics of indicators F1, F2 and F3.

(*) Absolute stability or availability of own working capital or its absence is also determined by the indicator – The share of own working capital in covering reserves and costs of DOS

Dsos =

If the value of the indicator is greater than one Dsos > 1, then own funds are greater than the cost of inventory. This means the absolute security of own working capital. If Dss <1, then there is no absolute security (stability).

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