General

Analyzing the financial sustainability of the institution

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Financial stability refers to the ability for an enterprise to operate and grow,ensure that it has a balanced balance of assets and keep the balance of its

liabilities and assets.

The business is financially stable when its financial flows are in balance as well as there are funds available for operational activities as well as for

servicing the loans received.

The company has an attractive investment profile and a reasonable degree of risk for business owners.The firm’s financial health is dependent on:The

quantity of capital equityQuality of assets;The stability and amount of revenue;The level of profitability on the consideration of financial and

operational riskThe level of liquidity capacity to borrow.

However these two indicators are based on the stability of the economy.To determine the degree of financial stability in both domestic and

international practice ,

 

 

the following parameters are employed:Net assets is the amount calculated by subtracting the amount of the company’s liabilities from its assets.The

net asset method of computation for companies that are joint-stock (JSC) was approved through the Order of the RF Ministry of Finance as well as the

Federal Securities Market Commission of the 29th of January, 2003.

The assets comprise:Non-current capital (line 1300)Current asset (line 1500) with the only the actual share buyback expenses and the participants’

(or founders’) loans on contributions to the charter capital (it is not listed in a distinct line on the Balance Sheet, but it is part of the accounts for

short-term payable).Considered liabilities comprise:long-term obligations (line 1400);short-term obligations (line 1500) not including deferred

incomeNet assets can be calculated based on the formulaLine 1600 – SC (line 1400 plus line 1500 Line 1530)where Du is the sum of the actual

expenses incurred on the purchase of Treasury stocks and the arrears of participants’ of contributions to charter capital.Net assets should be in

positive form and must exceed the capitalization of the charter organisation. The company must offer an increase in the amount that shareholders

spend. In the event that net assets equal or smaller than the share capital it’s important in order to lower share capital until the net assets

amount.Equity ratio (financial independence ratio)Equity-assets-ratio = Equity / Assets, IC/AThe figures are derived directly from the balance sheet

(Assets is the amount of equity and capital A = LA + SC).In Russian practice, the usual value is greater than 0.5 and in international practice, as high

as 0.3 is acceptable.Financial dependence is a measure of the coefficient. (debt ratio) is different in significance to the one of autonomy and is

extensively employed in international practice.The numbers are derived out of the balance sheet (Assets is the total of debt and equity the sum of

which is SC plus SC).

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