The coefficient of maneuverability

Before talking about that also includes Flexibility ratio of equity capital, you must clearly understand the notion.

So this is a first indicator that indicates what part of the capital is in circulation, thereby forming the idea of what part of the money may be used for other attachments, and what is capitalized. In this Flexibility ratio should be high enough, it will give the possibility to use own funds to certain purposes (purchase of raw materials, accessories, etc.), while not being on the verge of bankruptcy.

If this figure decreases, this suggests that at the enterprise there is a slowdown in collection of receivables and tighten the terms of granting commodity loans from the side of contractors and suppliers. Conversely, if it increases, then the ability of the enterprise to repay the current liabilities increase, the creditworthiness of the organization increases.

It is believed that The flexibility ratio indicates the relationship of working capital, which is at the disposal of the enterprise to other sources of funding. Not surprisingly, this rate is not constant and unchanged. It can vary and depends on branch accessory of the enterprise and its structure.

The Most successful variant is considered, when Flexibility ratio of functioning capital in the dynamics, even slightly, but increased. This increase of the coefficient only indicates that the organization is functioning normally. The fact that to increase this indicator only in the case when the increase of own working capital is reduced or additional sources of funding. There is a direct relationship which with a sharp increase in this indicator may automatically cause a decrease in other indicators. For example, the ratio of financial autonomy will increase dramatically and will lead to dependence of the organization from creditors.

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I must say that from a financial point of view, this figure should be as high as possible, then it is better for the enterprise, because by doing so it suggests that the organization is free to maneuver in their financial activities and are not afraid to be dependent on them. Can be considered an optimum when The flexibility ratio equal to 0.5, although in this case some experts are inclined even to 0.3 mm.

If we talk about the formula by which it is possible to calculate this indicator, it must include accurate data income and expenses of a particular enterprise, so it is better to do, armed with figures from the accounting Department or special program.

To find out what will be best for the company Flexibility ratio, You must compare it to a specific venture with other averages in this industry.

Do Not forget that there are cases where this figure can be negative. Then we can safely say that we have before us an enterprise that is not able to provide costing and inventory, and therefore, the company has not sufficient capital to form a not only non-negotiable, but the current assets. In this case, we are dealing with an insolvent company.

Thus, we see that a detailed study of the activities of the company and its exact calculation of flexibility ratio allows us to understand how promising is the activity of the enterprise and do not lead to a complete bankruptcy and a catastrophic reduction of invested funds.