The analysis of the financial stability of the business


Financial stability is among the requirements for reliability of the business because many businesses during their operations are in the process of

attracting substantial amounts which they have borrowed, along with their capital.Financial sustainability is defined with the help of the indicators

that measure independence: an independent coefficient (autonomy) as well as the ratio of funding and an equity-to-debt ratio.The term “coefficient of

independence” in the special literature may have different terms (coefficient of ownership (coefficient of ownership), coefficient of independence or

the coefficient of autonomy) However, its basic concept is the same. establish how free of borrowing funds it is and how well it can be able to

move.The growth of the company indicates an increase in the financial independence of the firm, thus reducing the chance of financial troubles in the

future.The West it is believed that it is important to keep the coefficient of independence at a high degree. This allows you to keep a stable and stable

system of funding sources. This is the preferred structure by creditors and investors, as it enhances the security of the company’s funds and makes it

easier to maintain a steady operation and adapt to market circumstances.

The most foresight-oriented businessmen are always looking to increase the size of their capital through the creation of various types of reserve funds

as well as direct transfer of retained earnings to the capital authorized by law.


The significance of this indicator must be >=0.5 In this case, the creditors feel secure, as they know that the business can take care of all liabilities

using the funds it has in its account. Within Europe, the U.S. and European countries it is thought that this number should be within between 0.5-

0.6. In this situation the risk of creditors is reduced as the company can offer to sell half of the assets it has created using its own funds in order to pay

their debts, even though the remaining portion, where money borrowed was invested, could be diminished in value.In the countries with a developed

market economies, where contracts between buyers and suppliers are strictly adhered to The credibility of the company may not require as much

attention for an independence rate (in Japan it is allowed to lower the ratio by 0.2).The second indicator that reveals the firm’s financial stability can

be determined by the ratio of funding that is, the proportion of equity capital to borrowed capital.The higher the coefficient higher, the more secure

the loan is for investors and banks.The coefficient reveals what proportion of the business’s activities are funded by its own funds. The indicator

should be 1.

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