Solvency and liquidity

Any entrepreneur agrees that to createthe enterprise is not so difficult as to adjust the production, which gives a constant and considerable income. To be sure that the business is developing and making a profit, periodically assess the financial condition of the enterprise. This concept includes a whole system of interacting elements that control all enterprise cash assets.

Evaluation of such factors as profitability,financial stability and liquidity and others are necessary for banks, which determine the solvency of the enterprise in order to identify the most appropriate method of lending and interest rate.

The financial condition of the enterprise is provided bythe impact of all its areas of activity. The key to obtaining a good and stable profit for any organization is the regular production of quality and competitive products, in demand by the modern market. There are two ways to assess the financial state: external and internal analyzes. For example, the external analysis required for reporting to supervisory bodies, partners and others includes the following types of analysis:
- Profit analysis,
- determine financial stability and liquidity, solvency and stability,
- analysis of profitability,
- analysis of the effectiveness of the borrowed funds and others.

One of the main types of external legal analysisare considered the definition of liquidity, solvency and related areas. The liquidity of an enterprise is determined by the rate at which its assets can be sold and financial assets can be raised. It is determined by the value of highly liquid assets in relation to short-term debt. In the analysis of liquidity, both current and future changes in the above ratio are evaluated.

Liquidity is considered low, if the enterprise does notenough incoming funds. Profit from economic activities, as well as the amount of finance remaining after payment of obligations and dividends, and are the determining factors in determining the financial capacity of the enterprise. That is why liquidity and solvency are interrelated: the first determines the possibility of timely repayment of debts having their terms of payment. Obviously, for any bank, organizations and partners dealing with this enterprise, it is advisable to know the solvency forecasts not only for the current moment, but also for the near future.

If the current assets are large in valuecompared with short-term obligations - this indicates the liquidity of the enterprise. The solvency of the enterprise includes comparison of assets with short-term and long-term liabilities.

To determine liquidity means to analyzeliquidity balance, that is, the degree of excess of assets over liabilities. In this case, take into account both assets and liabilities, and share the concepts of quickly realized and slowly realized assets.

High liquidity means that the company can not only pay off the necessary obligations, but it is much quicker to pay off debts to outside organizations.

In addition to liquidity, it is very important to find out andfinancial stability of the enterprise, which is responsible for solvency with a prospect for the future. The assessment of financial stability is carried out to ascertain the stability and financial independence of the enterprise, as well as to determine the effectiveness of the work of capital in accordance with the originally declared economic activity.

Obviously, no company wishing toTo optimize its work will not refuse to carry out the above analyzes. After all, with their help, it is possible to conduct a review of the conduct of economic activity in order to preserve the size of existing assets and prevent their fall.

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