Coefficients of financial independence of the enterprise Formulas Calculation


Every enterprise, firm, or organization is aimed at making a profit. It is profit that allows to carry out investment policy in own circulating and non-

current assets, to develop production capacities and innovation of products. To assess the direction of the company needed points of reference. Such

benchmarks in the financial plan and financial policies are ratios of financial stability. Definition of financial sustainability Financial stability – is the

degree of solvency (creditworthiness) of the company, or the proportion of the overall stability of the company, determining the availability of funds to

maintain a stable and efficient operation of the company. Assessment of financial stability is an important step in the financial analysis of the

enterprise because it shows the degree of independence of the enterprise from its debts and liabilities.Types of financial sustainability ratiosThe first

coefficient characterizing the financial stability of the company is the financial sustainability ratio, which determines the dynamics of change in the

state of financial resources of the company concerning how much of the total budget of the company can cover the costs of the production process and

other purposes. The following types of financial sustainability ratios (indicators) can be distinguished:The index of financial dependence;The

indicator of the concentration of equity;The ratio of equity to debt;Equity Maneuverability Ratio;The indicator of the structure of long-term

investments;Leverage concentration ratio;Leverage ratio;The index of long-term borrowings.The coefficient of financial stability determines the

success of the enterprise because its value characterizes how much the enterprise (organization) depends on borrowed money from creditors and

investors and the ability of the enterprise to fulfill its obligations in time and in full. High dependence on borrowed funds can constrain the activity of

the enterprise in case of unplanned payment.

Next Post