The types of financial stability of an enterprise are described in sufficient detail in specialized literature, since this indicator characterizes the ability of an economic entity to survive in the market.
It is in the stable, strong and sustainable enterprises that there are more advantages in the struggle for leadership over the weak. You can determine the type of financial stability of the enterprise by considering individual factors that affect the resulting indicators of a business entity. These include:
- place of organization in the market;
- production and sale of low-cost, high-demand products;
- the potential of a business entity in the market;
- dependence of the enterprise on investors and external creditors;
- the presence of risk category debtors in terms of their insolvency;
- level of efficiency of financial and business operations.
Types of financial stability of the enterprise are a reflection of stability when there is an excess of income over expenses, which allows you to freely use your own money. And their effective use will contribute to an uninterrupted production process with subsequent sale of products. In other words, an assessment of the type of financial stability of an enterprise will determine the state of its financial resources, namely their use and distribution, which will ensure the development of a business entity with further high results in the form of profit. At the same time, solvency or creditworthiness should be maintained within the acceptable limits of risk. Therefore, the types of financial stability of the enterprise are closely related to the process of its economic and financial activities and are the main element of the analysis of the general condition of the company.
The analysis of this indicator for a certain date helps to determine the correctness of decision-making on managing the entity with its financial resources during the period that preceded this date. Therefore, the determination of the level of this economic indicator is simply necessary to understand the conformity of its financial resources with market requirements and the development needs of the company itself. It should also be noted that with insufficient study of this indicator, an enterprise may become insolvent and lose the funds necessary for industrial development. If this indicator is more than the normative value, then we can talk about the risks that will lead to inhibition of development, while increasing the enterprise’s unnecessary costs and reserves.
So, the types of financial stability of the enterprise:
- Absolute stability. To cover costs, only own funds are used as a source. In this condition, the business entity is characterized by high solvency and independence from creditors.
- Normal stability. The source of cost coverage, in addition to equity, is long-term lending. The main characteristics of such an enterprise: good production efficiency and high efficiency of borrowed resources.
- Unstable situation from the financial point of view. In addition to the listed sources of cost recovery, short-term loans are also used. The company has unstable solvency and the need to use additional funds. However, for this subject, not everything is lost.
- Crisis state. This situation of the enterprise can be characterized in two words: insolvency and bankruptcy.
Thus, the essence of sustainability is determined by calculating the effectiveness of the formation, distribution and use of monetary resources. In this case, solvency in this case may be its external manifestation.
The financial stability of a business entity is directly dependent on its structure and the degree of dependence on debtors and creditors.
