Analysis of the financial and economic condition and liquidity of an enterprise using the example of JSC Pechersky Bread Factory. Analysis and assessment of the financial risks of the borrowing enterprise by a commercial bank A1 a2 a3 grounds for affiliation
Balance sheet liquidity- this is the degree to which the enterprise’s liabilities are covered by assets, the period of transformation of which into cash corresponds to the period of repayment of obligations. The solvency of the enterprise depends on the degree of balance sheet liquidity. The main sign of liquidity is the formal excess of the value of current assets over short-term liabilities. And the greater this excess, the more favorable the financial condition of the enterprise in terms of liquidity.
The relevance of determining balance sheet liquidity acquires particular importance in conditions of economic instability, as well as during the liquidation of an enterprise due to its bankruptcy. Here the question arises: does the enterprise have enough funds to cover its debt. The same problem arises when it is necessary to determine whether the enterprise has enough funds to pay creditors, i.e. the ability to liquidate (repay) debt with available funds. In this case, speaking of liquidity, we mean the presence of working capital at the enterprise in an amount theoretically sufficient to repay short-term obligations.
To analyze the liquidity of an enterprise's balance sheet, asset items are grouped according to the degree of liquidity - from the most quickly converted into money to the least. Liabilities are grouped according to the urgency of payment of obligations. A typical grouping is shown in the table below:
Table. Grouping balance sheet assets and liabilities for liquidity analysis
| Assets | Liabilities | ||||||
| Group name | Designation | Compound | Group name | Designation | Compound | ||
| Balance until 2011 | Balance since 2011 | Balance until 2011 | Balance since 2011 | ||||
| Most liquid assets | A1 | page 260 + 250 | pp. 1250 + 1240 | Most urgent obligations | P1 | pp. 620 + 630 | page 1520 |
| Quickly marketable assets | A2 | pp. 240 + 270 | page 1230 | Short-term liabilities | P2 | pp. 610 + 650 + 660 | page 1510 + 1540 + 1550 |
| Slow moving assets | A3 | pp. 210 + 220 - 216 | pp. 1210 + 1220 + 1260 - 12605 | Long-term liabilities | P3 | page 590 | page 1400 |
| Hard to sell assets | A4 | pp. 190 + 230 | page 1100 | Permanent liabilities | P4 | pp. 490 + 640 - 216 | pp. 1300 + 1530 - 12605 |
| Total assets | VA | Total liabilities | VR | ||||
HELL. Sheremet points out the need: deduct expenses not covered by funds and targeted financing, and the amount of settlements with employees for loans they received. Expenses not covered by funds and targeted financing, as well as the excess of settlements with employees on loans received by them over the amount of bank loans, due to the issuance of loans to employees at the expense of special funds of the organization, are reduced when immobilization is subtracted from the value of sources of own funds. If, during the internal analysis, immobilization is detected under the items of other debtors and other assets, the total of quickly realizable assets is also reduced by its amount.(A.D. Sheremet. Comprehensive analysis of economic activity - M.: “Infra - M”, 2009).
To assess balance sheet liquidity taking into account the time factor, it is necessary to compare each asset group with the corresponding liability group.
1) If the inequality A1 > P1 is true, then this indicates the solvency of the organization at the time of drawing up the balance sheet. The organization has enough absolutely and most liquid assets to cover its most urgent obligations.
2) If the inequality A2 > P2 is feasible, then quickly realizable assets exceed short-term liabilities and the organization can be solvent in the near future, taking into account timely settlements with creditors and receipt of funds from the sale of products on credit.
3) If the inequality A3 > P3 is feasible, then in the future, with timely receipt of funds from sales and payments, the organization can be solvent for a period equal to the average duration of one turnover of working capital after the balance sheet date.
Fulfillment of the first three conditions automatically leads to the fulfillment of the condition: A4<=П4
Fulfillment of this condition indicates compliance with the minimum condition for the financial stability of the organization, the availability of its own working capital.
Based on a comparison of groups of assets with the corresponding groups of liabilities, a judgment is made about the liquidity of the enterprise’s balance sheet
A comparison of liquid funds and liabilities allows us to calculate the following indicators:
- current liquidity, which indicates the solvency (+) or insolvency (-) of the organization for the period of time closest to the moment in question: A1+A2=>P1+P2; A4<=П4
- prospective liquidity is a forecast of solvency based on a comparison of future receipts and payments: A3>=P3; A4<=П4
- insufficient level of prospective liquidity: A4<=П4
- balance is not liquid: A4=>P4
However, it should be noted that the analysis of balance sheet liquidity carried out according to the above scheme is approximate; a more detailed analysis of solvency using financial ratios is performed.
1. Current ratio shows whether the enterprise has enough funds that can be used to pay off its short-term obligations during the year. This is the main indicator of the solvency of an enterprise. The current liquidity ratio is determined by the formula:
K = (A1 + A2 + A3) / (P1 + P2)
In world practice, the value of this coefficient should be in the range of 1-2. Naturally, there are circumstances in which the value of this indicator may be greater, however, if the current liquidity ratio is more than 2-3, this, as a rule, indicates an irrational use of the enterprise’s funds. A value of the current liquidity ratio below one indicates the insolvency of the enterprise.
2. Quick ratio, or the “critical assessment” coefficient, shows how much the liquid assets of the enterprise cover its short-term debt. The quick liquidity ratio is determined by the formula:
K = (A1 + A2) / (P1 + P2)
Liquid assets of an enterprise include all current assets of the enterprise, with the exception of inventory. This indicator determines what proportion of accounts payable can be repaid using the most liquid assets, i.e. it shows what part of the enterprise’s short-term liabilities can be immediately repaid using funds in various accounts, short-term securities, as well as settlement proceeds. The recommended value of this indicator is from 0.7-0.8 to 1.5.
3. Absolute liquidity ratio shows how much of the accounts payable the company can pay off immediately. The absolute liquidity ratio is calculated using the formula:
K = A1 / (P1 + P2)
Shows what portion of short-term liabilities can be immediately repaid using funds in various accounts, short-term securities, as well as proceeds from accounts receivable. The value of this indicator should not fall below 0.2.
4. For a comprehensive assessment of balance sheet liquidity as a whole, it is recommended to use general indicator of liquidity of the enterprise's balance sheet, which shows the ratio of the sum of all liquid funds of the enterprise to the sum of all payment obligations (short-term, long-term, medium-term), provided that various groups of liquid funds and payment obligations are included in the specified amounts with certain weighting coefficients that take into account their significance in terms of the timing of receipt of funds and repayment of obligations. The overall balance sheet liquidity indicator is determined by the formula:
K = (A1 + 0.5*A2 + 0.3*A3) / (P1 + 0.5*P2 + 0.3*P3)
Evaluates changes in the financial situation of the company from the point of view of liquidity. This indicator is used when choosing a reliable partner from a variety of potential partners based on financial statements. The value of this coefficient must be greater than or equal to 1.
5. Own funds ratio shows how much the enterprise has enough of its own working capital necessary for its financial stability. It is defined:
K = (P4 - A4) / (A1 + A2 + A3)
The value of this coefficient must be greater than or equal to 0.1.
6. Functional capital agility coefficient shows how much of the operating capital is contained in inventories. If this indicator decreases, then this is a positive fact. It is determined from the relation:
K = A3 / [(A1+A2+A3) - (P1+P2)]
During the analysis of balance sheet liquidity, each of the considered liquidity ratios is calculated at the beginning and end of the reporting period. If the actual value of the coefficient does not correspond to the normal limit, then it can be estimated by its dynamics (increase or decrease in value). It should be noted that in most cases, achieving high liquidity is at odds with achieving higher profitability. The most rational policy is to ensure the optimal combination of liquidity and profitability of the enterprise.
Along with the above indicators, to assess the state of liquidity, you can use indicators based on: net cash flow (NCF - Net Cash Flow); cash flow from operating activities (CFO - Cash Flow from Operations); cash flow from operating activities adjusted for changes in working capital (OCF - Operating Cash Flow); cash flow from operating activities, adjusted for changes in working capital and satisfaction of investment needs (OCFI - Operating Cash Flow after Investments); free cash flow (FCF - Free Cash Flow).
At the same time, regardless of the stage of the life cycle at which the enterprise is located, management is forced to solve the problem of determining the optimal level of liquidity, since, on the one hand, insufficient liquidity of assets can lead to both insolvency and possible bankruptcy, and on the other hand, excess liquidity may lead to decreased profitability. Because of this, modern practice requires the emergence of increasingly advanced procedures for analyzing and diagnosing the state of liquidity.
Liquidity analysis
Liquidity - mobility of assets of enterprises, firms, banks, suggesting the possibility of uninterrupted payment on time of credit and financial obligations and legal monetary claims. Distinguish liquidity banks, firms, liquid assets, liquid funds. To determine the degree liquidity many countries use coefficient systems liquidity as the ratio of certain asset and liability items, regulations are developed and approved that require maintaining the established level of these ratios. Liquidity firm - the ratio of its debt and liquid funds, i.e. those funds that can be used to pay off the debt: cash, bank deposits, salable elements of working capital, etc. There is a classification of cash and financial assets by degree liquidity, i.e. by the speed and ease of their conversion into cash or other acceptable means of payment; the higher the degree liquidity, the lower the return on a given asset, as a rule, and vice versa.
Liquidity of a business entity can be found out by its balance. This means, in essence, the liquidity of the balance sheet of the enterprise under study will mean the liquidity of the entire enterprise as a whole.
Liquidity of the enterprise's balance sheet- the degree to which the enterprise’s liabilities are covered by its assets, the period of transformation of which into cash corresponds to the period of repayment of obligations. Liquidity is determined by the ratio of the amount of debt and liquid funds at the disposal of the enterprise. Liquid funds are those that can be used to pay off debts (cash on hand, deposits placed in bank accounts, securities, sellable elements of working capital, such as fuel, raw materials, etc.).
The task of analyzing balance sheet liquidity arises in connection with the need to assess the solvency of the organization, i.e. its ability to timely and fully pay all its obligations. Liquidity means the unconditional solvency of the enterprise and presupposes constant equality between assets and liabilities, both in total amount and in terms of maturity.
Balance sheet liquidity analysis consists in comparing funds by asset, grouped by the degree of their liquidity and arranged in descending order of liquidity, with liabilities for liabilities, grouped by their maturity dates.
Depending on the degree of liquidity, i.e. the rate of conversion into cash, the assets of the enterprise are divided into the following groups.
A1.Most liquid assets - To This includes all items of the enterprise's funds and short-term financial investments (securities). This group is calculated as follows:
A1 = Financial investments + Cash
or page 1240 + page 1250.
A2.Quickly realizable assets - accounts receivable.
A2 = Accounts receivable or line 1230.
AZ.Slow moving assets - items in section II of the balance sheet assets, including inventories, value added tax, accounts receivable (payments for which are expected more than 12 months after the reporting date) and other current assets.
AZ = Inventories + Long-term accounts receivable + VAT + Other current assets.
or page 1210 + 1 page. 220 + page 1260
A4.Hard to sell assets - Articles in section 1 of the balance sheet asset - non-current assets.
A4 = Non-current assets or page 1110.
Balance sheet liabilities are grouped according to the degree of urgency of payment.
P1.Most urgent obligations - To This includes accounts payable.
P1 = Accounts payable or page 1520.
P2. Short-term liabilities - These are short-term borrowed funds, debt to participants for payment of income, and other short-term liabilities.
P2 = Short-term borrowed funds + Other short-term liabilities
or page 1510 + page 1550.
PZ.Long-term liabilities - these are balance sheet items related to sections IV and V, i.e. long-term loans and borrowed funds, as well as deferred income, reserves for future expenses and payments.
PL = Long-term liabilities + Deferred income + Estimated liabilities
or page 1400 + page 1530 + page 1540.
P4.Permanent liabilities or stable - These are articles in section III of the balance sheet “Capital and reserves”.
P4 = Capital and reserves (organization’s own capital)
or page 1300.
To determine the liquidity of the balance sheet, you should compare the results of the given groups for assets and liabilities.
Balance is considered absolutely liquid, if the following relations hold:
Tcurrent liquidity indicates the solvency (+) or insolvency (-) of the organization at the nearest period of time at the moment in question:
TL = (Al + A2) - (P1 + P2);
Pprospective liquidity - This is a forecast of solvency based on a comparison of future receipts and payments:
PL = A3 - PZ.
Let's consider the main types of possible situations.
1. A1 > P1; A2 > P2; A3 > PZ; A4< П4; А1 >P1; A2< П2; A3 >PZ; A4< П4 при (А1+А2)>(P1+P2).
Normal, reliable solvency and financial stability of the organization.
2. A1 > P1; A2< П2; A3 >PZ; A4< П4 при (А1+А2)<(Ш + П2) или А1>P1;A2<П2;АЗ<ПЗ; А4<П4 при (А1+А2)>(P1 + P2).
There is occasional insolvency and financial instability of the enterprise.
3. A1 > Ш; A2< П2; A3 < ПЗ; А4 < П4 при (А1 +А2)<(П1 + П2) или А1< П1; А2 >P2; A3< ПЗ; А4 >P4 at (A1 + A2)<(Ш + П2).
There is an increase in insolvency and financial instability of the enterprise.
4. A1< П1; А2 < П2; A3 >PZ; A4 > P4 (A4< П4).
There is chronic insolvency and financial instability of the enterprise.
5. A1< П1; А2 < П2; A3 < ПЗ; А4 >P4.
There is a crisis financial condition of the enterprise, close to bankruptcy.
Comparison of liquid funds and liabilities allows you to calculate relative indicators. These indicators are the liquidity ratios of an enterprise. These ratios allow us to determine the company's ability to pay its short-term obligations during the reporting period. The most important among them from the point of view of financial management are the following:
General (current) liquidity ratio;
Quick liquidity ratio;
Absolute liquidity ratio;
Own working capital.
Total (current) liquidity ratio. Gives a general assessment of asset liquidity, showing how many rubles of current assets account for one ruble of current liabilities. The logic for calculating this indicator is that the company pays off short-term liabilities mainly at the expense of current assets; therefore, if current assets exceed current liabilities, the enterprise can be considered to be operating successfully (at least in theory).
Total (current) liquidity ratio is calculated as the quotient of current assets divided by short-term liabilities and shows whether the enterprise has enough funds that can be used to pay off its short-term liabilities within a certain period. According to generally accepted international standards, it is believed that this coefficient should be in the range from one to two. The lower limit is due to the fact that working capital must be at least sufficient to pay off short-term obligations, otherwise the company will be at risk of bankruptcy. An excess of current assets over short-term liabilities by more than two (three) times is also considered undesirable, since it may indicate an irrational capital structure. The value of the indicator can vary by industry and type of activity, and its reasonable growth in dynamics is usually considered as a favorable trend.
To tl = Working capital/Short-term liabilities =
Page 1200/page 1500 – (1530+1540+1430+1550)
Next on our list is urgent (quick) liquidity ratio, revealing the ratio of the most liquid part of current assets (cash, short-term financial investments and receivables) to short-term liabilities. The indicator is similar to the current ratio; however, it is calculated over a narrower range of current assets. The least liquid part of them - industrial reserves - is excluded from the calculation. The logic of such an exception consists not only in the significantly lower liquidity of inventories, but, what is much more important, in the fact that the funds that can be gained in the event of a forced sale of inventories can be significantly lower than the costs of their acquisition.
According to international standards, the level of the quick liquidity ratio should be above one. In Russia, its optimal value is defined as 0.7 - 0.8. The need to calculate this ratio is due to the fact that the liquidity of individual categories of working capital is far from the same. It is also necessary to take into account the peculiarities of using this indicator in Russia, in our market conditions. The fact is that, as follows from the description of the formula, the most liquid working capital here includes not only cash, but also short-term securities and accounts receivable. In a developed market economy, this approach is completely justified: short-term securities, by definition, are highly liquid funds; accounts receivable, firstly, are assessed minus potential doubtful debts, that is, only those debtors who are one hundred percent able to pay their debt to our company are taken into account. Secondly, an enterprise in a developed market economy has a number of legally regulated opportunities with which it can collect debts from its client. It is obvious that such conditions do not exist in the Russian economy. When analyzing the dynamics of this coefficient, it is necessary to pay attention to the factors that determined its change. Thus, if the increase in the quick liquidity ratio was mainly associated with an increase in unjustified accounts receivable, then this cannot characterize the activity of the enterprise from a positive side.
K sl = (Cash + Short-term financial investments + Accounts receivable) / Current liabilities =
Page 1260 + page 1240 + page 1230/page 1500
Based on the above, in the practice of Russian financial management, the quick liquidity ratio is rarely calculated. Most often used absolute liquidity ratio, that is, the liquidity of an enterprise is assessed by the indicator of cash, which, as we know, has absolute liquidity. The optimal level of this coefficient in Russia is considered to be 0.2 – 0.25. The absolute liquidity (solvency) ratio is the most stringent criterion for the liquidity of an enterprise and shows what part of short-term borrowed obligations can be repaid immediately if necessary. Since the development of industry standards for these coefficients is a matter of the future, in practice it is desirable to analyze the dynamics of these indicators, supplementing it with a comparative analysis of available data on enterprises that have a similar orientation of their economic activities.
Cal = Cash/Current Liabilities = Page 1250/ page 1500
An important indicator in the study and analysis of the liquidity of an enterprise is own working capital, the value of which is the difference between the company’s current assets and its short-term liabilities.
SOS = Working capital – Short-term liabilities =
Page 1200 – p.1500
The amount of own working capital characterizes that part of the enterprise's own capital, which is the source of covering its current assets (i.e. assets with a turnover of less than one year). This calculated indicator depends both on the structure of assets and on the structure of sources of funds. All other things being equal, the growth of this indicator in dynamics is considered as a positive trend. The main and constant source of increasing equity is profit. It is necessary to distinguish between “working capital” and “own working capital”. The first indicator characterizes the assets of the enterprise (Section II of the assets of the balance sheet), the second - the sources of funds, namely the part of the enterprise's own capital, considered as a source of covering current assets. The amount of own working capital is numerically equal to the excess of current assets over current liabilities. A situation is possible when the value of current liabilities exceeds the value of current assets. The financial position of the enterprise in this case is considered as unstable; immediate measures are required to correct it.
Own working capital gives the company greater self-confidence. After all, it is he who helps the enterprise out in the most varied manifestations of the negative aspects of the market. For example: in case of delay in repayment of accounts receivable or difficulties with sales of products, depreciation or loss of working capital. The financial position of an enterprise is negatively affected by both a lack and a surplus of net working capital.
The lack of these funds can lead the company to bankruptcy, since it indicates its inability to repay short-term obligations in a timely manner. The deficiency may be caused by losses in business activities, an increase in bad accounts receivable, the acquisition of expensive fixed assets without prior accumulation of funds for these purposes, the payment of dividends in the absence of corresponding profits, and financial unpreparedness to repay the enterprise's long-term obligations. A significant excess of net working capital over the optimal need for it indicates inefficient use of resources. Examples are: issuing shares or receiving loans without a real need for them for the economic activities of the enterprise, irrational use of profits from economic activities.
The balance sheet liquidity analysis carried out according to the above scheme is approximate. A more detailed analysis of solvency using financial ratios.
An analysis of the liquidity of an organization’s balance sheet arises in connection with the need to determine the degree of solvency, i.e. ability to fully and timely fulfill their financial obligations. The main task of assessing balance sheet liquidity is to determine the amount of coverage of the enterprise's liabilities with its assets, the period of transformation of which into monetary form (liquidity) corresponds to the maturity of the obligations.
The liquidity of assets should be distinguished from balance sheet liquidity, which is defined as the reciprocal of the time required to convert them into cash. The shorter the time it takes for a given type of asset to turn into money, the higher its liquidity.
Liquidity analysis consists of comparing assets, grouped by the degree of their liquidity and arranged in descending order of liquidity, with liabilities, grouped by their maturity and arranged in ascending order.
Depending on the degree of liquidity, i.e. the speed of conversion into cash, assets of the enterprise are divided into the following groups:
1. The most liquid assets A1= These include all items of the enterprise's cash assets and short-term financial investments (securities).
2. Quickly marketable assets A2= accounts receivable for which payments are expected within 12 months after the reporting date.
3. Slow-moving assets A3= items in section II of the balance sheet assets, including inventories, VAT, accounts receivable (payments for which are expected more than 12 months after the reporting date) and other current assets.
4. Hard to sell assets A4= intangible assets and deferred tax assets
Balance sheet liabilities are grouped according to the degree of urgency of their payment.
1. Most urgent obligations P1= these include accounts payable to participants for the payment of income, and other short-term liabilities.
2. Short-term liabilities P2= these are short-term loans and credits.
3. Long-term liabilities P3= includes long-term liabilities.
4. Permanent liabilities or stable P4= these are the organization’s own funds, i.e. capital and reserves, deferred income, reserves for future expenses.
To determine the liquidity of the balance sheet, you should compare the results of the given groups for assets and liabilities. The balance is considered absolutely liquid if the following ratios exist: A1≥P1; A2≥P2; A3≥P3; A4≤P4.
If the first three inequalities are satisfied in a given system, then this entails the fulfillment of the fourth inequality, so it is important to compare the results of the first three groups for assets and liabilities. In the case when one or more inequalities have the opposite sign from that fixed in the optimal variant, the liquidity of the balance sheet differs to a greater or lesser extent from the absolute value. In this case, the lack of funds in one group of assets is compensated by their surplus in another group in the valuation; in a real situation, less liquid assets cannot replace more liquid ones.
A comparison of liquid funds and liabilities allows us to calculate the following indicators:
current liquidity , which indicates the solvency (+) or insolvency (-) of the organization for the period of time closest to the moment in question: TL=(A1+A2) ≥ (P1+P2)
General (comprehensive) liquidity:
where L1,L2,L3 are weighting coefficients that take into account the importance of funds in terms of timing of receipt of funds and repayment of obligations (L1=1.0; L2=0.5;L3=0.5.)
| Z 2012 = | 218 415 | = 0,7553 | ||
| 289 152,5 | ||||
| Z 2013 = | 267 251 | = 0,6552 | ||
| 407 869,5 | ||||
A table is compiled to analyze liquidity. The columns of this table record data at the beginning and end of the reporting period from the comparative analytical balance sheet by asset and liability groups. By comparing the results of these groups, the absolute values of payment surpluses or deficiencies at the beginning and end of the periods are determined. Thus, a check is made to see whether the liabilities on the balance sheet are covered by assets whose conversion into cash is equal to the maturity of the liabilities.
| Initial data for liquidity and solvency analysis | |||||||
| ASSETS | Beginning of the period 12/31/2012 | End of period 12/31/2013 | PASSIVE | Beginning of the period 12/31/2012 | End of period 12/31/2013 | Payment surplus or deficiency (+;-) | |
| gr.2 – gr.5 | gr.3 – gr.6 | ||||||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| A1 | 33 899 | 19 374 | P1 | 186 152 | 307 465 | -152253 | -288091 |
| A2 | 367 785 | 495 174 | P2 | 205 329 | 200 137 | ||
| A3 | 1 247 | P3 | -92 | ||||
| A4 | 3 789 | 3 890 | P4 | 2 058 | 6 671 | -2781 |
A comparison of the results of group I for assets and liabilities, i.e. A1 and P1 (terms up to 3 months), reflects the ratio of current payments and receipts. Comparison of the results of group II in terms of assets and liabilities, i.e. A2 and P2 (terms from 3 to 6 months), shows a trend of increasing or decreasing current liquidity in the near future. A comparison of the totals for assets and liabilities for groups III and IV reflects the ratio of payments and receipts in the relatively distant future.
A1<П1
In this state, the enterprise has difficulties paying obligations for a time interval of up to 3 months due to insufficient receipt of funds. In this case, assets of group A2 can be used as a reserve, but additional time is required to convert them into cash. Asset group A2, in terms of liquidity risk, belongs to the low-risk group, but the possibility of loss of value, violation of contracts and other negative consequences cannot be excluded;
A2 > P2
If the inequality A2 > P2 is feasible, then quickly realizable assets exceed short-term liabilities and the organization can be solvent in the near future, taking into account timely settlements with creditors and receipt of funds from the sale of products on credit.
A3 > P3
If the inequality A3 > P3 is feasible, then in the future, with timely receipt of funds from sales and payments, the organization can be solvent for a period equal to the average duration of one turnover of working capital after the balance sheet date.
A4 > P4
if A4 > P4, then this, in fact, is a prerequisite for the risk of insolvency of the enterprise, since it does not have its own working capital to conduct business.
Conclusion
In general, analysis of financial and economic activity as a science is a system of special knowledge related to the study of economic development trends, scientific justification of plans, management decisions, monitoring their implementation, assessment of achieved results, search, measurement and justification of the value of economic reserves for increasing production efficiency and development of measures for their use.
Making informed, optimal management decisions is impossible without first conducting a comprehensive, in-depth economic analysis of the organization's activities.
An analysis of Novorossiysk Management Company OJSC shows that in 2012 the enterprise had an unstable financial position, characterized by a violation of solvency, in which it remains possible to restore balance by replenishing sources of own funds, reducing accounts receivable, and accelerating inventory turnover.
In 2013, absolute financial stability was observed, characterized by the fact that all the company’s reserves are covered by its own working capital, i.e. the organization does not depend on external creditors. This situation is extremely rare. Moreover, it can hardly be considered ideal, since it means that the company’s management is unable, unwilling, or unable to use external sources of funds for core activities.
The labor productivity indicator has increased, which indicates the efficient use of labor resources.
During the analysis of the solvency and liquidity of the enterprise, it was found that the current liquidity ratio is less than the norm, this is due to the fact that current assets are greater than short-term liabilities.
An analysis of balance sheet liquidity shows that the enterprise’s balance sheet at the end of the reporting period can be considered illiquid. The enterprise lacks the most liquid assets to cover the most urgent obligations; the organization's position has worsened, since quickly realizable assets at the end of the period do not cover short-term liabilities. The group of quickly realizable assets is sufficient to cover existing loans.
To improve the solvency and financial stability of OJSC Novorossiysk Management Company, you should:
Reduce the need for borrowed sources of financing, increasing your own working capital by increasing profits;
Reduce the amount of short-term liabilities by attracting long-term ones
Bibliography
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Analysis of balance sheet liquidity, using the example of Lenta LLC
Analysis of balance sheet liquidity is an integral part of the methodology for assessing the solvency of an organization. Solvency is the ability to repay your payment debts on time with cash resources.
Assessing solvency is an important aspect of financial analysis. Assessments of a business partner for creating a joint business or implementing an investment project, as well as for internal management of the financial condition of the organization.
The assessment of solvency on the balance sheet, Form 1, is carried out on the basis of the liquidity characteristics of current assets, which is determined by the time required to convert them into cash. The less time spent, the more liquid the asset.
An analysis of the liquidity of an enterprise is an analysis of the liquidity of the balance sheet and consists of comparing assets for assets, grouped by degree of liquidity and arranged in descending order, with liabilities for liabilities, combined according to their maturity dates in ascending order.
The essence of balance sheet liquidity analysis comes down to checking whether the liabilities in the balance sheet liabilities are covered by its assets.
The balance is considered absolutely liquid if the following ratios exist:
A1>=P1; A2>=P2; A3>=P3; A4<П4.
Failure to meet one or more inequalities indicates a violation of the liquidity of the balance sheet.
Table 2.5
The results of calculations based on the balance sheet data show that during the two analyzed periods in Lenta LLC, the comparison of group results for assets and liabilities has the following form:
Table 2.6
(Indicators that deviate from the norm are shown in red.)
In Fig. 2.6 you can see the ratio of assets and liabilities of Lenta LLC for 2 reporting periods.
This analysis showed that the enterprise Lenta LLC is not a liquid enterprise and, in cases where it is necessary to immediately repay short-term obligations, it will be an insolvent company, or it will begin to sell its fixed assets, which is a very unfavorable trend in the financial activities of the enterprise, as well as it will reduce the interest of investors and turn away other legal entities that had business relations with it on the market, since the company will not have financial stability.
Based on the obtained indicators, it is possible to calculate the payment surplus, that is, the lack of funds to achieve the standard indicator (if the indicator is negative), as well as the coverage percentage, which shows what share of working capital liquidity the company provides under a certain indicator. Table 2.7
Table 2.7
Based on the data obtained, the degree of balance sheet liquidity can be characterized as insufficient.
Inequality A1<П1 свидетельствует о том, что у организации имеется платежный недостаток наиболее ликвидных активов для покрытия наиболее срочных обязательств. Это и второе неравенство А2>P2 indicate the level of current liquidity. Current liquidity shows the level of solvency or insolvency of the company and is calculated using the formula.
TL = (A1 + A2) ? (P1 + P2).
TL = -7205066.00 (2011 since 2012 this figure has increased even more)
A negative payment surplus indicates an excessively low current balance sheet liquidity.
Failure to satisfy the third inequality (A3<П3) показывает, что перспективная ликвидность (ПЛ) отрицательная. Будущие поступления всего на 0,36% покрывают будущие платежи. Еще немного и она станет отрицательной.
Failure to fulfill the fourth inequality, A4>P4, shows that the organization has a lack of its own working capital, therefore, financial stability is impaired.
balance sheet liquidity solvency
The fulfillment of the first 3 inequalities in this system inevitably entails the fulfillment of 4 inequalities, therefore, it is practically essential to compare the results of the first three groups for assets and liabilities. 4 inequality is of a balancing nature and at the same time has a deep economic meaning: its fulfillment indicates compliance with the minimum condition for financial stability - the presence of the enterprise's own working capital.
Failure to meet any of the first 3 inequalities indicates that the balance sheet liquidity is different from absolute.
In this case, the lack of funds in one group of assets is compensated by their excess in another group, although compensation in this case takes place only in value, since in a real payment situation less liquid assets cannot replace more liquid ones.
Comparison of the most liquid assets and quickly realizable assets with the most urgent liabilities and short-term liabilities allows us to identify current liquidity and solvency, that is, for the near future. If the degree of liquidity is so great that after the most urgent obligations are repaid, excess funds remain, then the timing of settlements with banks, suppliers, and so on can be accelerated.
Prospective liquidity can be determined by comparing A3 and P3
Liquidity balances over a number of years provide an opportunity to assess changes in financial position.
Since the degree of conversion of current assets into cash is not the same, therefore, in domestic practice, 3 relative liquidity indicators are calculated:
1. Current ratio (coverage ratio).
The current liquidity ratio gives a general assessment of the liquidity of the enterprise and shows to what extent current accounts payable are covered by current assets, that is, how many rubles of financial resources invested in current assets are per 1 ruble of current liabilities. Standard value of the coefficient Kt.l. ≥ 2.
The growth of the indicator in dynamics indicates positive results in the activities of the enterprise.
The value of the current liquidity ratio on average depends on the industry sector of the enterprise.
In many industries, the value of the ratio can deviate significantly in any direction, but too high a value of the current liquidity ratio compared to the industry average is undesirable, since this indicates an inefficient use of resources, which is expressed in a slowdown in the turnover of funds invested in inventories and unjustified growth accounts receivable.
2. Quick liquidity ratio.
It is calculated based on a narrower range of current assets, when the least liquid part of them – inventories – is excluded from the calculation. This is due to the fact that the funds that can be gained as a result of the emergency liquidation of inventories are significantly less than the costs of their acquisition, and also because the transformation of inventories into cash can take a long time.
In the West, the standard value of Kb.l. ³ 1, in Russia the quick liquidity ratio varies between 0.8-1 (Artemenko) and 0.7-0.8 (Markaryan), in trade organizations the critical value of this ratio is 0.4-0.5.
3. Absolute liquidity ratio
Shows what portion of short-term borrowed funds can be repaid immediately.
The value of this coefficient should be greater than 0.2-0.25 (Markaryan) or 0.3-0.8 (Kovalev).
When using liquidity ratios in the analysis, it is necessary to take into account the industry specifics of the enterprise. It is very difficult to establish a criterion for every industry.