The coefficients of financial stability: overview

Profit to its owner is capable of bringing any company. But is it possible to predict in advance all the successes or failures of your business? Of course, to do this, most likely, will not work, but there are special factors of financial stability, helping to shape the direction of your company. This allows the entrepreneur to the opportunity to learn about how his organization is independent in the financial plan.

The Coefficients of financial stability: basic concepts

With financial sustainability is commonly understood as part of the overall sustainability of the organization, which illustrates the availability of funds, focused on maintaining efficient operations, balanced cash flows, as well as those factors which allow to consider the whole business financially independent. In General, we can assume that financial stability is a testimony of the company's solvency in the long term. Its definition and assessment is an important and serious step performed with respect to any company financial analysis. Otherwise, the owner will suffer great losses, without knowing it.

The Coefficients of financial stability and their types

The Financial stability of any enterprise can be easily calculated using the relevant indicators characterizing the state of cash resources of the company and their dynamics as to how the organization is able to cover the costs of production processes and other objectives.

The Coefficients of financial stability can be presented in these variations:

• Dependencies;
• The concentration of capital;
• agility capital;
• investment structure for long term;
• the concentration of capital in the loan;
• the capital structure of the loan;
• long-term attraction of funds in the loan;
• leveraged and equity capital.

Why the financial stability ratio shows how successful the activities of the firm? The fact is that this figure illustrates how the strong dependence of a particular business from borrowed funds, can he easily dispose of his capital, while eliminating the risk of penalties for non-payment, and high interest rates. The calculation of this coefficient allows to correctly plan the activities of the enterprise, and avoid the risks associated with the unplanned payment of funds.

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The Ratio of the concentration of capital ownership determines the percentage of funds invested in the organization by its owner. The higher is this index, the less dependent will the enterprise from external creditors. This ratio characterizes the company based on how its assets are financed by borrowing. It is believed that the solvency of the company is markedly reduced, if the proportion is excessively high. The result of this is small financial stability of the company that becomes the reason of minimizing opportunities not only credit, but also the confidence of counterparties. Too significant weight of equity capital is also not considered optimal.

Flexibility Ratio of capital ownership allows to determine the share of sources of funds to the business owners. In this case, the recommended value is 0.5 or more. The metric value depends entirely on what species of entrepreneurial activities.

Calculation of all these indicators shows the overall stability of the company in the current market conditions. The coefficients of financial stability of the enterprise allow to predict results of the business that do a very good service.