Analysis of financial sustainability as the most important process in determining the company's position in the market
The key to the success of any company is its financialstability, which allows it not only to cope with possible decreases in economic and operational performance due to the deterioration of the economic situation in the country, but also to further develop and expand by investing profits in the total capital of the enterprise. Analysis of financial stability in this regard allows you to reflect all of the company's economic indicators, and through the rational management of labor, financial and material resources, to create a balance sheet in which revenues exceed expenditures severalfold. As a result of this, a steady flow of financial resources will be made, which will allow the company to both current and long-term solvency. In addition, this state of affairs will also allow to fully meet the investment expectations of the owners.
When performing the analysis, it is important to determinerationality of the existing ratio of debt and equity, because with each type of financing has its advantages and disadvantages, which should be carefully considered. So, the financial stability analysis considers two types of financing: at the expense of own funds, and also at the expense of borrowed capital.
Thus, in both types of financingthere are advantages and disadvantages. It is noteworthy that investing a company's own assets out of the norm of its profit may not always be rational, as the owner expects not only a return of funds, but also a stable return on investment, that is, dividends from investing. In this respect, an outside financial institution (banks, credit unions) may be more attractive, since it claims only to return the invested funds with interest. Thus, all future profits will go exclusively to the shareholders of the company.
Among other things, analysis of financialstability allows for more stable planning of cash flows, as well as shift the break-even point of the company towards greater reliability. It should also be taken into account that a small enterprise that has a large share of debt obligations has a much smaller margin for maneuvering in the event of unforeseen difficulties (falling demand for goods, rising costs, seasonal decline in sales, etc.).
For the competent implementation of such an analysisyou should know the main indicators of this process, as a competent analysis of financial stability indicators allows you to adjust the overall strategy of the firm to achieve the most effective result. So, the main indicators that characterize the structure of capital include the following:
- coefficient of financial stability;
- coefficient of independence;
- coefficient of dependence on borrowed capital (in the long term);
- funding ratio.
Having carried out an analysis of financial sustainabilityusing the above factors, the company will be able to qualitatively identify all existing risks, as well as improve the profitability of production. At present, when determining the assets and liabilities of an enterprise, the analysis of economic stability plays a very important role, helping the management correctly determine the goals and objectives of both short-term and long-term planning.