To assess the liquidity and solvency of an enterprise, you need to thoroughly study its balance sheet - the ratio of assets and financial liabilities of the company. You can contact an accountant for figures.
Often, all that a business has are its various assets: non-cash and cash, real estate, equipment, and accumulated accounts receivable. Liabilities are debt obligations that must be repaid. In order to correctly analyze the solvency and financial stability of an enterprise, these indicators must be combined.
What is needed to calculate liquidity
To objectively analyze the solvency of an enterprise, it is necessary to adhere to a number of rules:
When calculating, take into account the value of the property declared by the market, and not the book value. For example, for a car, the actual value will be the one calculated when it is sold.
Change overdue accounts marketing with stockholder database receivable. For example, the buyer did not pay for the goods on time and it is unclear whether he will pay at all. In this case, the debt is simply not taken into account, as if there was no receipt of money. The same with the remaining goods that could not be sold.
The table below and further in the text provide simplified examples of calculations - the main principle when conducting a financial analysis of the solvency of an enterprise. Since each company has its own individual work scheme, you can only understand all the intricacies in detail with a specialist.
Assets: They are most often grouped by liquidity period Liabilities: grouped by repayment period
A1 – highly liquid assets. This is the name given to, for example, money in accounts or in the cash register, as well as various shares and bonds. P1 – urgent liabilities: these include those that must be repaid on the day of the company's balance sheet assessment. This includes debts on wages, to contractors, off-budget funds, the budget, and so on. In short, everything that is not repaid on time.
A2 – this category includes those assets from the sale of which you can quickly make a profit. An example is accounts receivable with an early maturity date. P2 – liabilities with an average maturity that must be repaid within 12 months. These include short-term loans.
A3 – slow-moving assets that cannot be sold at market price before a specific date. Examples here are finished goods, raw materials, or accounts receivable with more than 12 months of payment. P3 – long-term liabilities with a maturity of more than one year. Example – long-term loans.
A4 – all assets with difficult realization. This includes equipment and real estate. P4 – permanent liabilities. This term refers to those funds that do not need to be shared with anyone. This includes profit from shares, additional capital of the enterprise, as well as profit that has not been distributed. If P4 is close to zero or even in the red, the company operates only at the expense of borrowed funds, without having its own.
Grouping assets and liabilities is a stage of preparing the analysis of the solvency of the enterprise. At the same time, indicators A1 - A4 and P1 - P4 are necessary for the analysis of the financial condition of the company.
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Alexander Kuleshov
Alexander Kuleshov
General Director of Sales Generator LLC
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