solvency analysis is essential for any enterprise as using its tools can be described the financial position of a business entity.In other words, an assessment of the possibility of timely repayment of its payment obligations existing available cash resources.
analysis of balance sheet liquidity and solvency of the company is carried out based on the characteristics of the liquidity of current assets, and is defined by an interval of time that is required to convert them into cash.It should be borne in mind that the value of the liquidity ratio depends on the time in the elimination of the asset, ie,The higher the liquidity, the less time needed for collection of the asset.
solvency analysis shows the possibility of wrapping the assets into cash and repay their own obligations.This takes into account the deadline for repayment of liabilities term conversion of assets into cash.These figures depend on the results of a comparison of the means of payment that are available from the company, and the amount of short-term liabilities.
company's liquidity is a more general concept in comparison with balance sheet liquidity.The second indicator shows the ability of enterprises to seek funds only from domestic sources.For example, from the sale of assets.However, the company may be involved and external borrowings at favorable financial image in the business market and the attractiveness of a sufficiently high level in the investment aspect.
analysis of solvency and liquidity is similar on how to conduct, but the second is a more capacious concept.After all, if more understanding, depending on the liquidity of solvency.Thus with the help of liquidity it describes the current state as the settlement and in the future.A company can be declared insolvent on a particular date, and expect unfavorable results of its operations in the near future.
In the literature found the term "liquidity current assets", by means of which the analysis of solvency.And another term - "total liquidity assets" is used to assess the possibility of their early sale in case of bankruptcy.
All three terms are considered in close relation with each other.For example, balance sheet liquidity is the "foundation" of liquidity and solvency of the company.In other words, liquidity - the main method of regulating solvency.At the same time the presence of sufficiently high image of the enterprise is constantly a high level of solvency, through which much easier to keep liquidity at an appropriate level.
analysis of solvency and financial stability is an integral part of the analysis of financial activity of the subject.In itself, the concept of "financial stability" shows the balance of all financial flows, availability of the necessary funds to sustain its operations now in a period of time in the course of the main economic activities, the repayment of financial loans, etc.
other words, financial stability is a predictor of solvency in the long period.
Solvency must be distinguished from such a measure as creditworthiness.The second term is used for internal financial analysis of specific business units.
