Coefficients of financial stability: general information

Profit to its owner is able to bring any enterprise. But is it possible to predict in advance all the successes or failures of your business? Of course, this will most likely not work, but there are special coefficients of financial stability, through which you can determine the direction of development of your company. These indicators allow the entrepreneur to get an opportunity to learn about how his organization is financially independent .

Coefficients of financial stability: basic concepts

Financial stability is understood to mean the share of the overall sustainability of the organization, which illustrates the availability of funds aimed at maintaining the effective operation of the enterprise, the balance of cash flows, as well as those factors that make the entire business financially independent. In general, we can assume that financial stability is a testament to the company's solvency in the long run. Its definition and evaluation is an important and serious stage of the financial analysis conducted with respect to any company. Otherwise, the owner will incur large losses, without noticing it.

Coefficients of financial stability and their types

Financial stability of any enterprise can be easily calculated using the appropriate indicators characterizing the state of the company's cash resources and their dynamics as to how much the organization's budget can cover the costs of production processes and other purposes.

The coefficients of financial stability can be represented in such variations:

• Dependencies;
• Concentration of capital;
• Maneuverability of capital;
• Structure of investments for a long term;
• Concentration of capital in the loan;
• Capital structure in the loan;
• Long-term borrowing;
• Share of debt and equity.

Why exactly the coefficient of financial stability shows how successful the company will be? The whole point is that this indicator illustrates how strong the dependence of a particular business on borrowed funds, whether it is able to easily have its capital, while excluding the risk of penalties for non-payment, as well as high interest. Calculation of this coefficient allows you to correctly plan the activities of the company, as well as avoid the risks associated with unplanned payments of funds.

The coefficient of concentration of capital in ownership determines the share of financial assets invested in the activities of the organization by its owner. The higher this indicator is, the less dependent will be the enterprise from external creditors. This ratio characterizes the company's activity, based on how much its assets will be financed by using borrowed funds. It is believed that the solvency of an enterprise is significantly reduced if their share is excessively high. The result is a small financial stability of the company, which is the reason for minimizing the ability to obtain not only credit, but also the trust of counterparties. Too significant value of the share of equity is also not considered optimal.

The coefficient of capital maneuverability in ownership makes it possible to determine the share of sources of money held by business owners. In this case, the recommended value is 0.5 or more. The magnitude of the indicator depends entirely on the type of business activity.

The calculation of all these indicators shows the overall stability of the company in current market conditions. Coefficients of financial stability of the company allow you to predict the results of the business, which will ultimately serve very well.