Understanding the terminology is important not only for professional economists, accountants, sometimes it is necessary for people who are far from a similar field of activity. Novice specialists also need additional information when conducting a financial analysis of the enterprise.
When summing up the results of the year, one has to operate with such terms as the coefficient of financial dependence. What does he mean? This indicator demonstrates the degree of dependence of the enterprise (company, firm) on third-party lenders and investors. It is the inverse of the indicator of the coefficient of concentration of capital of the company itself. With the growth of the coefficient of financial dependence of the enterprise, there is a dynamic increase in borrowed funds. With a value of 1, the owner of the company independently finances his organization. With a value of 1.25, we can conclude that for every 1.25 rubles invested in the company's assets, twenty-five kopecks are borrowed. The indicator of financial dependence is widely used in practice.
In addition, the term “financial stability” is used. This is the ratio, which is the main when conducting financial analysis of the enterprise. This value reveals how stable the enterprise is, independent of borrowed funds, how freely it is able to manage its capital.
You can define financial stability as the financial independence of the company, in which the state of its accounts allows you to determine its guaranteed solvent. The following types of financial stability are distinguished, which are divided according to its degree:
- Absolute stability. With her, there is complete independence from external creditors. Loans made by the company for the purchase of stocks are covered by its own working capital.
- Normal stability. When acquiring stocks, the company draws on normal sources of coverage.
- Unstable state. In this case, the company is forced to attract additional sources to cover stocks.
- Crisis state. It is characterized by the fact that the company has outstanding payables.
Calculating the coefficient of financial stability of the enterprise, use the following indicators. The coefficient of financial dependence, which determines the degree to which the financing of company assets occurs at the expense of borrowed funds. If the equity capital of an enterprise occupies too large a share, then this may be disadvantageous to the owners of the company, since it imposes restrictions on its production capabilities. But even most of the borrowed capital is capable of undermining the stability of the enterprise, as a result of which the trust of counterparties falls to it.
In addition to this indicator, when analyzing the financial activities of the company, the concentration coefficients of the capital of the enterprise are calculated; the maneuverability that the organization's own capital has; a coefficient showing the concentration of borrowed capital, etc. The value of all these indicators (including the financial dependence ratio) depends on many factors. For example, such as the industry in which the company is engaged, credit conditions, the structure of sources for covering property. With their help, the dynamics of the financial structure and stability of the company are evaluated. Quality indicators can be divided into two groups.
One will include capitalization indicators that demonstrate the structure of the flow of funds to the enterprise. The second - indicators of the quality of expense. They can be called coverage indicators. They assess the state of the enterprise and its ability to support the structure of sources of funds.
Calculate the financial dependency ratio is necessary in order to control the share of borrowed funds in the total capital of the enterprise and to ensure that the indicator does not become very large. Otherwise, this will indicate a risky situation of the enterprise and may result in bankruptcy.
