The coefficient of loss of solvency is determined. How the solvency recovery rate is calculated
The financial condition of the enterprise is analyzed by many indicators. One of the most important is the solvency ratio. What you need to know about this index, how to calculate it and how to decipher the results, we will analyze in the article.
What is the solvency ratio
An efficiently operating enterprise must be able to meet all obligations undertaken on time and in full - this is what is called solvency. Its decline threatens not only with the loss of reputation, but also with possible bankruptcy. This important factor financial condition, which must be constantly monitored in order to take the necessary measures in a timely manner. The quantitative indicator of this side of the enterprise is called solvency ratio.
Obligations can be settled in cash or with the help of certain assets that can be liquid to varying degrees. Therefore, the company's solvency depends on two points:
- how many and what kind of assets the organization has;
- how quickly existing assets can be sold.
FOR YOUR INFORMATION! Solvency and creditworthiness are similar but not identical concepts. The first reflects the ability to repay liabilities with any available assets, and the second - only with highly liquid assets without involving permanent ones in the process, such as land, real estate, production facilities, etc.
Solvency and liquidity
Liquidity- a key concept for the solvency of an enterprise, since it reflects the ability to wrap assets in cash or use them to pay off liabilities within a specified time frame. It can be assessed in different forms:
- general- expresses the consistency of the company in relation to the repayment of any types of loans through the sale of any types of assets;
- the current- assessed at the beginning and end of the accounting period, reflects the relationship between the value of all existing assets and the overall performance of the enterprise, shows how likely it is to repay current debts with the help of current assets;
- urgent (fast)- the ability to quickly close short-term loans using fast-liquid assets;
- absolute- shows the overall feasibility of the enterprise's potential repayment of its obligations.
NOTE! The ratios of certain types of liquidities also represent significant financial indicators of the enterprise.
Types of assets in relation to liquidity
Any asset has value because it is liquid. Any enterprise has two types of assets in its structure:
- current - those that can be converted into money within 1 accounting period (production cycle, year);
- constant - the main means of production, directly involved in it.
In terms of time and ease of "conversion" into cash or use as repayment accounts receivable it is customary to rank the assets of the enterprise by 4 levels of liquidity... The more assets a company has with high liquidity, the better its solvency.
- High liquidity assets- have the maximum rate of transformation into money, refer, as a rule, to current assets. Examples of the most liquid assets:
- cash on hand;
- finance for current account enterprises;
- banknotes at the organization's ATMs;
- funds on the way, etc.
- Rapid Implementation Assets- the speed of circulation in finance is considered to be fast, which is less than a year, that is, it is also predominantly current assets. They are considered to be:
- bank deposits;
- accounts receivable;
- investment in securities etc.
- Low liquidity assets- are implemented slowly, for example:
- leased items;
- long-term investments;
- stocks of raw materials, materials, finished products;
- semi-finished products, blanks;
- work in progress, etc.
- Practically illiquid assets- hard-to-sell fixed assets of production, fixed assets:
- buildings, structures;
- land;
- equipment;
- enterprise transport;
- intangible assets;
- overdue and doubtful loan debts.
Liquidity factors
Within the framework of the same enterprise, the factors on which liquidity depends may change over time:
- assets are bought and purchased;
- lose and add in value;
- funds are invested or spent;
- the number and state of liabilities change, etc.
This dynamism means that liquidity can change from one reporting period to the next. It is important that even if it falls, it regains its level before the onset of the designated period. This opportunity is restoration of solvency.
Legislative regulations of the KVP
Solvency Recovery Ratio (ROC) Is a special financial indicator that reflects the ability of current liquidity to fully renew within six months after the date of the report.
This is how it is determined by the Methodological Provisions for assessing the financial condition of enterprises and establishing an unsatisfactory balance sheet structure, approved by the order of the Federal Office for Insolvency (Bankruptcy) of August 12, 1994 No. 31-r.
The formula for calculating the coefficient of restoring solvency
To determine this indicator, it is necessary to know the liquidity levels at the beginning and end of the analyzed period and the time frame in which the solvency grew to an acceptable level. The coefficient is calculated according to the formula given in the Methodological Provisions:
KVP = (KTL NP + 6 / T x (KTL NP - KTL KP)) / K norm... , where:
- KVP - coefficient of recovery of solvency;
- KTL NP - current liquidity ratio at the beginning of the reporting period;
- KTL KP - current liquidity ratio at the end of the reporting period;
- T is the reporting period for which the analysis is carried out;
- To the norms. - the value of the current liquidity ratio equal to 2.
Deciphering the result of the calculated solvency recovery factor
The figure obtained as a result of the calculations is compared with 1.
- If the KVP exceeds one, this means that the company under normal conditions easily restores the liquidity of its assets for no longer than 6 months.
- An indicator less than 1 indicates that at the moment the organization does not have the opportunity to adequately restore solvency in the next six months.
- The lower the KVP, the closer the enterprise is to the brink of bankruptcy or its work artificially deteriorates.
With a catastrophically low CVF, it is urgent to take anti-crisis measures, these can be:
- request for refinancing of the most "burning" debts ";
- consideration with creditors of questions about benefits for payments;
- taking a new loan to repay an earlier one;
- staff reduction;
- reduction of costs, mainly due to administrative, less productive - production;
- inventory and partial sale of property assets;
- reduction in production costs;
- increase in production volumes (if there is demand);
- invitation for consultation and specialist assistance.
Measurement errors of KVP according to the formula
The formula is not an absolutely accurate way to measure KVP, since it takes into account only two extreme indicators of liquidity, excluding intermediate values. In this case, the beginning and end of the period are determined arbitrarily, which also reduces the accuracy of the calculation.
A more accurate way to determine the CWP is “ linear trend calculation", That is, with a minimum" step "in the measurement, at least 4, not 2 periods. The result looks clearer in the form of a graph. Such a calculation is practically not used manually, it is easy to perform it in computer programs adapted for this, for example, Excel, or specialized ones, such as, for example, FinEkAnaliz, Your Financial Analyst, etc.
Example of calculating KVP
Liliana OJSC measured the level of current liquidity: in January 2017, the indicator was 0.85, and in December 2017 (over 12 months) it increased to 1.12. Let's calculate the possibility of restoring the solvency of OJSC "Liliana" for a standard six-month period:
KVP = (1.12 + 6/12 x (1.12 - 0.85)) / 2 = 0.6275.
We see that the OJSC has a low solvency that needs to be restored, although it is not easy, despite the fact that at the end of the year the current liquidity was significantly raised. The inaccuracy of this calculation should be taken into account: it is quite possible that the growth in current liquidity observed by the end of the year was the result of significant anti-crisis factors undertaken by the management of Liliana. In this case, the “linear trend” method, where the calculation would take not a year, but more fractional periods, perhaps, would show a better result.
Solvency recovery rate- This is a relative value showing the ability of an enterprise that has completely lost its liquidity (and therefore ceased to make a profit) to restore it in six months.
It is calculated, as a rule, by the accounting department at the request of the head of the enterprise and is used in financial planning and building the further strategy of the enterprise. In addition, there are several more options for its use.
Dear reader! Our articles tell about typical ways of solving legal issues, but each case is unique.
If you want to know how to solve exactly your problem - contact the online consultant form on the right or call by phone.
![](https://i2.wp.com/hardcorecase.ru/wp-content/themes/template/images/offr2-leadia.jpg)
It's fast and free!
Scope of application:
- Forecasting the financial condition of the enterprise and drawing up plans for its further actions. So, for example, at the end of each quarter at a mittens manufacturing enterprise, the accounting department can calculate the solvency recovery rate and, guided by this indicator, together with some others, the management can predict the future fate of the enterprise and which mittens are better to produce in the next season. If the coefficient is low, then something is wrong and you should try something else. If it is high, then the company is moving in the right direction.
- Control over the timely fulfillment of the company's obligations... So, the same management of the factory for the production of mittens, based on the coefficient, can conclude that if everything goes as it is, then in the next quarter it will be impossible to pay off loans and pay off the wool suppliers, which means that something urgently needs to be done and new obligations do not give to anyone.
- Partners and investors put more trust in enterprises with a high coefficient. For example, wool suppliers may be reluctant to work with a mitten mill if they find out that it has a low coefficient. Because it means that with a high probability no one will pay for their wool. If the ratio increases, suppliers will become more trusting in the plant.
- Management can assess how appropriately the loans are used and how realistic it is to repay them in full. If a factory that produces mittens took a dozen loans, but at the end of the quarter the ratio decreased, there can be only one conclusion - the loans are not useful and are used incorrectly. Or they were even plundered.
Since solvency is closely related to creditworthiness, it can sometimes be difficult to understand how one is different from the other.
What is the difference between solvency and creditworthiness:
- Solvency indicates the ability of an enterprise to pay off urgent debts. With suppliers, for example, with whom there is an exact agreement. The solvency of a factory producing mittens is expressed by its ability to pay for the wool that is supplied to it.
- Creditworthiness indicates the ability of an enterprise to pay off long-term debts, that is, on loans. Thus, the creditworthiness of a plant that produces mittens is expressed by its ability to pay off all its loans at the end of the month - both those that were taken for the purchase of new equipment, and those that were taken to modernize production.
Indicators that play a role in assessing solvency:
- Overall liquidity. It shows how the financial situation is changing.
- Absolute liquidity. It shows how much of the short-term debt the company can repay.
- Intermediate. It shows what the company has in the future to pay off if all short-term debts and loans are repaid.
- General liquidity ratio. Shows how well the company is provided with funds to pay off short-term debt.
- Working capital security ratio. Shows the financial stability of the enterprise - how much it has its own working capital.
- Quick liquidity ratio. The sum of all debts.
- PSC- net working capital.
How to calculate the recovery factor?
- (Kf + 6 / T (Kf - Kn)) / 2;
Wherein:
- Кф - current liquidity ratio (the ratio is taken at the end of a certain period, quarter or month, for example);
- 6 - the period within which the solvency must be restored;
- T - reporting period (quarter, month, several months);
- Кн - current liquidity ratio at the beginning of the same period, the indicator at the end of which indicates Кf;
- 2 - the standard value of the current liquidity ratio, as such;
Using the example of a factory for the production of mittens, the calculation by the formula will look like this:
- Kf = 1, because due to the fact that summer is coming, the demand for mittens is falling, income is decreasing, and when calculating the current liquidity ratio, the indicator is not very impressive.
- T = 3, because it is customary at the plant to summarize the results every 3 months.
- Kn = 2, because the last reporting period was spring and there was still a residual demand for mittens.
So the formula looks like this:
- (1 + 6/3 (1 – 2)) / 2 = – 1,5;
Looking at the resulting coefficient of recovery of the plant's solvency, everyone can understand that everything is bad with the plant. Mittens are not bought, their quality is low, and therefore the plant will not become solvent in six months.
Coefficient values:
- If the value of the coefficient of restoring solvency is greater than 1, the company has a chance to regain its solvency in six months.
- If the coefficient is less than 1, he has no such chance.
How to calculate the loss rate?
- Loss of solvency ratio = (Кф + 3 / Т (Кф - Кн)) / 2.
Where all the values are identical to the search for the recovery factor, and 3 is the period in which the solvency will be completely lost.
In the case of a mitten factory, the formula would look like this:
- (1 + 3/3 (1 – 2)) / 2 = – 1;
Since the coefficient is less than 1, it is believed that the likelihood of the plant losing its solvency in the next 3 months is very high.
If it was more than 1, it would be considered the other way around.
How to restore solvency?
![](https://i0.wp.com/hardcorecase.ru/wp-content/uploads/2015/09/monety.jpg)
Characterizing the availability of an enterprise's ability to restore or lose its solvency within a certain time.
Solvency recovery rate - what it shows
Solvency recovery rate- shows the possibility of restoring the normal current liquidity of the enterprise within 6 months after reporting date.
Solvency recovery rate - formula
General formula for calculating the coefficient:
K tl start - current liquidity ratio at the beginning of the reporting period; K tl con - current liquidity ratio at the end of the reporting period; T - period in months; 6 - the period of restoration of solvency in months; K tl norms - the standard value of the current liquidity ratio. Usually taken equal to 2, but can take values from 1 to 2.5
Solvency recovery factor - value
The coefficient of restoring solvency, taking a value greater than 1, calculated for a period of 6 months, indicates that the enterprise has the opportunity to restore its solvency.
The coefficient of recovery of solvency is less than 1, calculated for a period of 6 months, indicates that the enterprise does not have the opportunity to recover its solvency in the near future.
Average statistical values by years for enterprises of the Russian Federation
Revenue size | Yearly values, rel. units | ||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |
Micro-enterprises (revenue< 10 млн. руб.) | 0.424 | 0.526 | 0.497 | 0.516 | 0.461 | 0.500 | 0.526 |
Mini-enterprises (10 million rubles ≤ revenue< 120 млн. руб.) | 0.550 | 0.573 | 0.531 | 0.531 | 0.549 | 0.535 | 0.541 |
Small businesses (120 million rubles ≤ revenue< 800 млн. руб.) | 0.619 | 0.594 | 0.545 | 0.591 | 0.571 | 0.587 | 0.623 |
Medium-sized enterprises (800 million rubles ≤ revenue< 2 млрд. руб.) | 0.618 | 0.595 | 0.630 | 0.612 | 0.611 | 0.638 | 0.656 |
Large enterprises (revenue ≥ RUB 2 billion) | 0.697 | 0.666 | 0.649 | 0.697 | 0.654 | 0.650 | 0.685 |
All organizations | 0.664 | 0.627 | 0.608 | 0.640 | 0.612 | 0.619 | 0.651 |
Table values are calculated based on Rosstat data
Was this page helpful?
More found about the coefficient of recovery of solvency
- Liquidity of the enterprise There are the following liquidity indicators of the enterprise quick liquidity ratio quick liquidity ratio critical liquidity ratio interim liquidity ratio current liquidity ratio total liquidity ratio absolute liquidity ratio coverage ratio recovery ratio solvency ratio of loss of solvency ratio of maneuverability of functioning capital Management of liquidity of an enterprise For growth
- Financial ratios Coverage ratio Recovery ratio solvency Loss of solvency ratio Maneuverability ratio of functioning capital Turnover ratio Asset turnover ratio
- Analytical review of methods for predicting the likelihood of bankruptcy of enterprises Russian organizations because they use coefficient-constants calculated in accordance with conditions different from Russian. According to the results of the analysis, it can be considered ... the Irkutsk Academy, which determines the probabilistic nature of whether the enterprise is able to achieve the restoration of its solvency while avoiding the onset of the crisis References to sources 1. Trenenkov EM
These indicators are often of interest to employees of the credit departments of banks. Banks need these indicators in order to be sure that the company has assets (cash and securities) that can be quickly foreclosed. Other indicators of this group tell which funds are used more potential borrower- own or borrowed.
Total coverage ratio or current liquidity
This indicator allows you to assess how the company copes with current obligations, that is, with its day-to-day payments. It is calculated like this:
ОА - the sum of the company's current assets (line 290 of the Balance Sheet);
KO - the amount of the company's short-term obligations (that is, which must be paid during the year) (line 690 of the Balance - line line 650).
(Lines 640 and deferred income and reserves forthcoming expenses- have nothing to do with short-term debt.)
Free legal advice:
Experts believe that this figure should be more than one. If the coefficient turned out to be less than one, then this means that the company is not coping with its current obligations.
An example from the given Balance:
Beginning of the year: = 2.7
End of the year: = 2.39.
The indicator at the end of the year decreased slightly compared to the indicator at the beginning of the year. You should figure out why.
Free legal advice:
Intermediate (urgent) liquidity ratio.
The intermediate liquidity ratio is determined by the following formula:
(KFV + DS + KDZ): KO, where
КДЗ - short-term receivables of the enterprise, that is, with a maturity within 12 months after the reporting date (line 240 of the Balance Sheet);
Free legal advice:
The value of this indicator must be above 0.5.
Inventories, VAT and long-term receivables are removed from the assets participating in the calculation, since such assets are sold in order to fast receipt money is almost impossible.
In our example:
At the beginning of the year - (620 + 550 + 8340): = 0.85.
Free legal advice:
At the end of the year - (9300 + 590 + 700): = 0.79.
The indicators are very good, but have declined by the end of the year. Therefore, it is better to calculate indicators for several years.
Absolute liquidity ratio
It assumes the principle of instant payment, that is, how much money a company can give creditors right at the moment.
The absolute liquidity ratio is calculated using the formula:
(KFV + DS): KO, where
KFV - short-term financial investments(line 250 Balance);
Free legal advice:
DS - cash (line 260 of the Balance);
KO - the amount of short-term liabilities (line 690 of the Balance - line 650).
Its optimal value ranges from 0.15 and higher.
The calculation includes money and securities. It is believed that securities can be sold instantly, that is, they are the same money.
At the beginning of the year - (620 + 550): = 0.1.
Free legal advice:
At the end of the year - (590 + 700): = 0.09.
This is not very good result... All the previous good figures were based on the fact that the company has many debtors. In order to unambiguously recognize the impeccable liquidity and solvency of the company, it is necessary to additionally study the composition of the company's debtors in order to find out the possibility of quickly collecting debts.
Equity ratio
To calculate this most important indicator, the formula is used:
(SK - VNO): OA, where
SK - equity (line 490 of the Balance Sheet);
Free legal advice:
VNO - non-current assets (line 190 of the Balance Sheet);
ОА - current assets (line 290 of the Balance Sheet).
This indicator must be at least 0.1 (if lower, then the company may be considered bankrupt).
At the beginning of the year - (3 490): = 0.53.
At the end of the year - (4 995): = 0.49.
These are good indicators.
Free legal advice:
If the indicators of the current liquidity ratio and the coverage ratio own funds turn out to be below the norm, which means that the company is on the verge of bankruptcy. The final confirmation of this possibility allows the coefficient of recovery of solvency. If this indicator is more than one, then the company has a real opportunity to restore its solvency.
Solvency recovery rate
The formula for the calculation is:
KTL (k) + (6 / T) x (KTL (k) - KTL (n)): 2, where
Free legal advice:
6 - the period of restoration of solvency in months;
Loss of solvency ratio
Calculate firms that have so far all right with their performance. The formula for the calculation is:
KTL (k) + (3 / T) x (KTL (k) - KTL (n)), where
KTL (k) - the actual value (at the end of the reporting period) of the current liquidity ratio;
Free legal advice:
KTL (n) - the value of the current liquidity ratio at the beginning of the reporting period;
3 - period of loss of solvency in months;
Т - reporting period in months.
In our example: (2.39 + (3/12) x (2.39 - 2.7)): 2 = 1.16.
The threshold value is considered to be 1. If the indicator is less than 1, it is necessary to look at what has changed for the worse in the organization.
Free legal advice:
Financial ratios
Financial ratios are relative indicators financial activities of the enterprise, which express the relationship between two or more parameters.
To assess the current financial condition of an enterprise, a set of coefficients are used that are compared with the standards or with the average performance of other enterprises in the industry. Coefficients that go beyond the normative values signal the company's “weak points”.
All financial ratios are analyzed in the FinEkAnaliz program.
To analyze the financial condition of a company, financial ratios are grouped into the following categories:
Free legal advice:
Profitability ratios
Liquidity (solvency) ratios
Turnover rates
Market stability ratios
Financial soundness ratios
Coefficients of the condition of fixed assets and their reproduction
Formulas of financial ratios are calculated on the basis of accounting data:
Synonyms
More found about financial ratios
financial ratios that provide the required reliability and reliability of the forecast probability assessment The main methods and models used in foreign and domestic practice for assessing the financial condition and forecasting bankruptcy are Z-account E
financial ratios are relative indicators calculated on the basis of accounting data financial statements and making it possible to get an idea of its individual characteristics.The coefficient analysis of the balance sheet includes the calculation and
financial solvency ratios presented by the ratios of current quick and absolute liquidity Coverage ratio of current liquidity Ktl shows what part of current loan and settlement liabilities can be repaid by mobilizing all circulating
Financial dependence ratio of capitalized sources Long-term liabilities Long-term liabilities Equity capital of LTD LTD EU Coefficient of financial independence of capitalized sources Equity capital Long-term liabilities Equity capital EU LTD EU Financial ratio
financial stability ratio - E D А, etc. Also considered are the coefficient s characterizing the share of various types of attracted financial sources in the balance sheet liabilities. Indicators of companies' liquidity were calculated as indicators
financial ratios in the analysis and diagnostics of a possible bankruptcy is increasing. Over the last period, a number of methods have been adopted that reveal the rules for conducting financial analysis, which make it possible to assess the financial condition of an organization and identify
financial ratio equal to the ratio equity capital and reserves to the amount of the company's assets The initial data for the calculation contains the balance sheet of the organization The financial independence ratio is calculated in the FinEkAnalysis program in the block
The financial stability coefficient K fu is the ratio of the organization's own funds to the amount of borrowed funds K fu SK PK where SK is the equity of the company PK - attracted capital
Financial ratios characterizing the structure of total capital are usually considered as characteristics of the risk associated with the activities of the organization. The higher the share of debt, the higher the need for Money ah necessary for him
financial ratios that would be significant for assessing the financial condition of an enterprise in almost any sector of the economy.The following share of current assets in property can be offered as such financial ratios
Financial dependence ratio Financial dependence ratio - definition Financial dependence ratio - an indicator that is inverse to the financial independence ratio, it is determined by the ratio of the total amount of financial resources to the amount
Financial Risk Ratio Financial Risk Ratio - Definition The Financial Risk Ratio shows the ratio of borrowed funds and total capitalization and characterizes the degree of efficiency in using the company's equity capital.
Financial leverage ratio Financial leverage ratio - definition The financial leverage ratio shows the ratio of borrowed funds and total capitalization and characterizes the degree of efficiency in the use of equity capital by the company It determines how much
financial ratios are calculated on the basis of the corresponding items of the balance sheet form No. 1 The listed indicators reveal the nature of the relationship between current assets and short-term liabilities current liabilities All three financial ratios
financial ratios to their minimum standard levels, the rating number will be equal to one and the organization, respectively, has a satisfactory financial condition and vice versa, a value less than one indicates an unsatisfactory result Economist O
financial ratios to assess their values and consists of 12 stages 1. Calculation and assessment of financial ratios that determine the proportions between equity and borrowed capital used by the enterprise Assessment of the cumulative influence of the factor
Coefficient of financial independence in terms of formation of reserves Coefficient of financial independence in terms of formation of reserves - definition Coefficient of financial independence in terms of formation of reserves - a coefficient equal to the ratio of the value of own
Financial stability ratio Financial stability ratio - definition Financial stability ratio - a ratio equal to the ratio of equity capital and long-term liabilities to the balance sheet currency The initial data for the calculation is the accounting
financial independence ratio SK A 10 where SK is equity capital Shows how a part of the organization's assets is financed by equity capital Financial dependence ratio ratio of borrowed capital concentration
Loss of solvency ratio: formula, value, decoding
An organization's solvency is the ability to pay mandatory payments. It assumes the availability in the budget of the enterprise of funds that can be used to cover accounts payable, offered for immediate payment.
The equivalent of money is taken into account. This concept means highly liquid objects that can be quickly converted into money. They should also be of relatively stable value. The loss of solvency ratio allows you to determine the financial potential of the company.
Solvency potential loss ratio
Solvency calculations are made on the basis of the balance sheet. The objectives of the analysis of this document are:
Free legal advice:
- analysis of the organization's assets;
- list of obligations;
- the size of the company's capital.
Estimation of financial ratios is the most important step in financial analysis the debtor's solvency. It will also help determine the sustainability of the enterprise.
The solvency loss ratio demonstrates the possibility of a drop in the current liquidity of the enterprise for the next three months. Based on these indicators, the leader can take into account the following options for the development of the situation:
- The balance is positive and the organization has sufficient payment potential.
- The balance is negative and the organization can be declared bankrupt.
The data also allows you to:
- Calculate the organization's potential for recovering debt coverage.
- Calculate the objective odds of losing the ability to pay.
Having a problem? Call our lawyer:
Free legal advice:
Calculation formula
The required value is the ratio of the calculated liquidity ratio today to the established indicator.
The formula looks like this: Ku = (Ktl.k. + 3 / T (Ktl.k. - Ktl.n.)) / 2, where:
- Ktl. к. - liquidity indicator for today;
- Ktl.n. - the initial indicator that is relevant when the reporting period is opened;
- T - reporting interval, expressed in months;
- З - interval of loss of solvency, expressed in months;
In some cases, you may need a bankruptcy certificate, that is, about its absence. It can serve as proof of solvency.
The law on the restoration of the debtor's solvency is here. Sometimes this procedure does return financial stability.
Free legal advice:
Decryption
What to do with the received indicators? Consider the values of the obtained coefficients:
- Less than 1.8. The risk of bankruptcy of the organization is quite high. Here additional features bankruptcy risk assessments;
- 1.81 - 2.7. Bankruptcy opportunities are average;
- 2.8 - 2.9. The organization is financially stable;
- 3. The enterprise is stable, has a positive balance and does not threaten bankruptcy.
- an indicator less than one indicates high risk crisis situation;
- indicators exceeding one indicate a relatively stable position of the organization.
The value is valid for three months. For this time period, you can build economic strategies with orientation to the obtained values. It is also important to analyze the readings in dynamics, compare the numbers obtained with the indicators calculated over the past three months.
How do you calculate your recovery rate?
What if the calculations showed a loss of ability to cover obligations? There are two ways for the situation to develop: bankruptcy and restoration of the previous situation.
It is not always possible to return to the previous level. How do you know if it is worth filing bankruptcy or trying to cope with a crisis situation? To answer this question, there is a formula that determines the recovery factor. It shows the potential for a return to previous financial stability.
You can calculate the recoverability using the following example:
Free legal advice:
- Ktl.k. - today's liquidity;
- Ktl. n. - indicator at the beginning of the report time;
- Т - report time, expressed in months;
- 6 - time of deterioration of potential for payment, expressed in months;
- 2 - standard indicator of today's liquidity ratio.
The decryption of the recovery value is performed as follows:
- The result is less than one. Possibilities for recovery are very low.
- The result is higher than one. The potential to return to the previous position is medium or high.
Indicators of recovery and loss of ability to meet obligations are fundamental in assessing financial situation in company. Based on these two numbers, you can find out the information you need. However, the method also has its drawbacks.
This scheme takes into account liquidity at two ends of the reporting time: start and end. At the same time, the dynamics of changes in liquidity is ignored.
Using the formula, you can get the following results:
- financial position enterprises;
- structural balance sheet;
- calculation of the bankruptcy of the organization.
The system will be especially useful during the crisis period of the organization, when a decision is made on the further development strategy. It can also be used by interim managers in the management of an institution undergoing insolvency proceedings. It will help to reveal the real potential of the company and make an informed decision about its fate.
Free legal advice:
In the Sanitation section you will find more information on this topic.
Free legal support by phone:
Moscow and Moscow region: (call is free)
St. Petersburg and Leningrad region:
Attention! In connection with latest changes in legislation, the legal information in this article may be out of date!
Free legal advice:
Enterprise solvency ratio
Solvency is understood as the ability of the enterprise to cover its obligations to any counterparties.
And the higher this indicator, the more the company is financially stable and independent of external sources of funds.
But this indicator need to be constantly monitored.
Dear Readers! The article talks about typical ways of solving legal issues, but each case is individual. If you want to know how to solve your particular problem, please contact a consultant:
Free legal advice:
The solvency of the enterprise. What's this?
Most the best way- this is the availability of that amount of money that will completely cover current debts, leaving a significant amount for investment in materials, raw materials and others. And the most stable option for the financial position of the company is the availability of its own funds, and not borrowed funds.
The optimum is the solvency that can be provided by liquid assets, i.e. the property that can be quickly converted into cash - the most liquid asset. This property includes securities, accounts receivable with a maturity of up to 12 months, deposits.
VAT reimbursed from the budget is also considered slow to be realized, but liquid; work in progress, goods, products, inventories. And objects such as buildings, land plots, equipment, vehicles and other fixed assets are recognized as difficult to sell. Although, under certain circumstances, these objects can act as collateral for loans. Those. actually become money.
What is liquidity and solvency of a company is described in the following video tutorial:
Main indicators of the characteristics of payment ability
Several coefficients are involved in the analysis of paying capacity, which we will consider below.
Everything happens in a few clicks, without queues and stress. Try it and you will be surprised how easy it has become!
Ratio of current paying capacity (liquidity) or debt coverage (KTP)
With its help, the size of the share of the company's short-term debts, which is covered by current assets, is determined:
The excess of working capital over current debts gives creditors confidence that debts to them will be repaid on time. An excess of 2 times is considered optimal. But, the higher this indicator, the more stable the position of the company.
The calculation for the balance of this indicator will look like this:
All line numbers (p.) In this formula and subsequent formulas are taken from form No. 1 (balance sheet). By the way, very often to calculate this ratio, it is recommended to exclude debts from line 1230 of the balance sheet "Accounts Receivable" that are expected to be paid no earlier than a year, and even more than this period.
Total Paying Capacity (CPC)
Reflects the ability of the company to cover at the expense of all available funds not only its current liabilities, but also long-term ones - with a maturity of more than a year.
The calculation involves all types of accounts payable and all assets - liquid and difficult to sell:
To calculate the balance, the coefficient formula will look like this:
Loss of solvency (PLC)
It is calculated only if the current liquidity ratio is equal to or exceeds its standard at the end of the period, but at the same time there is a tendency to decrease it.
Those. if at the beginning of the period the coverage rate of current debts was higher, and by the end of the billing period it decreased:
KUP = (KTP AT THE END OF PERIOD + (W: T x (KTP END OF PERIOD - KTP START OF PERIOD)): 2,
3 - period of recovery of payment capacity, months;
T - reporting period, months;
2 - standard of the current liquidity indicator.
If the PMC turned out to be higher than the standard 1, then the enterprise has a real chance to maintain high liquidity of its balance sheet for three months. However, if the PMC indicator is less than 1, then the company should pay attention to the risks that threaten it.
Recovery of solvency (KVP)
It is calculated in the case when the coefficient of the current paying capacity turned out to be less than 2 (i.e., its standard), but at the same time there is a tendency for its growth:
KVP = (KTP AT THE END OF THE PERIOD + (6: T x (KTP AT THE END OF THE PERIOD - KTP AT THE BEGINNING OF THE PERIOD)) / 2,
6 - liquidity recovery period, months;
T - reporting period, month;
2 - standard indicator of current liquidity.
KVP must exceed 1, then the company has the opportunity to make its balance sheet liquid again. Otherwise, the company will not be able to restore the liquidity of its balance sheet and restore stability to its financial position in the next six months.
Absolute liquidity (rate of cash reserves) (KabL)
It is considered the most accurate indicator of the balance sheet liquidity level. It is the ratio of only cash resources and short-term liabilities, from which the income of future periods and the amounts invested in the creation of reserves for future expenses are deducted:
Using balance lines, this formula would look like this:
With the help of this coefficient, it is established how much debt with the current maturity can be covered with the help of the most liquid resource - cash. The lower limit of this coefficient is set at 0.2. A decrease in the actual value in comparison with the standard value is an alarming signal.
Fast liquidity (intermediate or urgent solvency) (KBL)
To calculate it, only short-term financial investments, accounts receivable with a maturity of less than one year and money, and all debts with a maturity of up to 12 months are taken:
If you use the balance lines, the ratio will be calculated according to the following ratio:
A value in the range of 0.7 - 1 is recognized as satisfactory. However, this standard may not be sufficient for an accurate analysis of the quick liquidity indicator, if the majority of short-term assets will be accounts receivable.
Absolute Solvency (ABP)
The calculation involves assets with high liquidity and the most urgent liabilities in all areas:
Using the balance sheet lines, this ratio will be as follows:
The ratio satisfying a stable financial position is in the range from 0.2 to 0.5. Compliance with this range indicates the ability of the enterprise to cover all current (that is, the term of which is less than 12 months) liabilities at the expense of assets with high liquidity.
A decrease in this coefficient to the lower standard limit is a dangerous sign.
Long-term solvency (LTP)
Using this indicator, you can identify the risk of bankruptcy at an early stage:
Equity includes additional and reserve capital, authorized fund (or capital); profit not distributed among the owners (account 84 accounting) and funds received as part of targeted funding:
This ratio reflects not just the ratio of equity capital and borrowed money, and the level of solvency for long-term obligations. And the lower the value of this ratio, the more independent the enterprise is from borrowed funds.
Own solvency (PCB)
By calculating this indicator, the company is able to find out whether it still has after covering the debts financial resources for their subsequent investment in activities:
PCB = Net equity current: current assets
Net working capital = working capital - Current liabilities = p. 1200 - (p. 1510 + p. 1520 + p. 1550).
The higher this indicator, the more stable the position of the company. As for its normative value, it is individual for each industry. Moreover, it is believed that the volume of the net working capital in current assets should be at least half.
Analysis of indicators reflecting liquidity and solvency
The analysis of these indicators is carried out on the basis of the balance sheet. For this purpose, all indicators are calculated both at the beginning of the period and at the end, so that it is possible to study their dynamics during the year. In addition, calculations are made at least 3 years in advance to establish a trend towards a decrease or increase in the level of financial independence of the company.
It is important in the analysis to establish the reason for the deviation of indicators from their values for previous years. In this case, a serious assistant is the study of changes that occur in the balance sheet item by item - it is necessary to study the dynamics of the indicators involved in calculating the coefficients. This is what will make it possible to determine the reasons for the improvement or deterioration of the company's solvency.
The procedure for calculating and analyzing solvency and liquidity is described in this video lecture:
Still have questions? Find out how to solve exactly your problem - call right now.
One of the most important economic indicators the work of the enterprise is the ratio of solvency. It points to the firm's ability to make mandatory payments in a timely manner. In the course of work, the company inevitably faces the need to pay taxes and insurance fees; invoices issued from suppliers for goods, raw materials and services; credit liabilities; pay salaries to your employees, etc. Disruptions in payment indicate problems with the company's solvency and are a sign of possible bankruptcy.
Loss ratio is
The solvency ratio reflects the ability of the company to fulfill its payment calendar without violations of the terms. To maintain a balance of payments, a company must have the necessary funds and sufficient liquid property to meet all creditor claims. Liquid property means various highly liquid investments that are easily convertible into cash and are subject to insignificant inflationary and other risks of changes in value. These include opened by a bank overdraft for the company.
Thus, a company can remain solvent even in the absence of money in its accounts, when it has the opportunity to quickly sell its assets to get rid of debts.
To analyze the loss of the company's solvency, financial ratios are used, thanks to which it becomes possible to determine this indicator in numerical terms. One of them is the loss of solvency ratio.
It displays the likelihood that the firm's current liquidity will deteriorate over the next quarter (3 months). It is calculated on the basis of the balance sheet data (form No. 1).
The main goal of the ongoing financial analysis is to assess the assets of the company and their relationship with liabilities and the amount of equity capital. To solve this problem, you need to analyze in detail the structure of debt obligations and property, draw your own conclusions about the liquidity of the balance sheet.
Coefficient formula
The solvency loss ratio is calculated as the ratio of the determined current liquidity ratio to its standard (set value). The first indicator is the sum of the actual value of current liquidity (at the end of the period) and changes in the values of the ratio at the end and beginning of the reporting period.
The formula for calculating the loss of solvency ratio was approved by the Federal Administration for Bankruptcy in 1994. For this document, the formula looked like this:
K1 + 3 / P (K1-K2) / 2.
In the above formula:
K1- is the actual value of KTL (current liquidity ratio) at the end of the period;
K2- this is the actual value of the CTL at the beginning of the period;
2 - standard value of KTL;
3 - the number of months for which the coefficient is calculated;
P- period in months according to the report.
You can see that the loss of solvency ratio is closely related to the current liquidity of the legal entity. This show indicates the ability of the enterprise to turn assets into money as quickly as possible and fulfill its obligations at the expense of the proceeds. Current liquidity calculated as the ratio of current assets to short-term liabilities. It cannot be less than 2 (that is, assets are twice as large as liabilities).
Current assets may include stocks, cash on hand and on current accounts, accounts receivable, short-term investments (within 3 months). Obligations mean accounts payable, loans and credits, debts to shareholders and founders.
When is the indicator calculated?
This ratio of loss of solvency is one of the key in the management financialization of the enterprise. It is allowed to prevent the loss of solvency and to take timely measures to prevent the occurrence of such a negative scenario. If there is a failure to pay its obligations, the company risks losing competitiveness, the trust of partners, it will incur additional expenses to pay interest and penalties.
The analysis results allow the company to plan its financial activities, to distribute the items of expenditure in terms of their priority for the near future.
In addition to management analysis for the internal needs of the company, the ratio can be calculated by the appointed financial manager to determine the signs of fictitious bankruptcy (when the company actually has the funds to pay off its obligations to creditors, nevertheless, it declares its insolvency). Usually, the loss of solvency ratio is calculated in dynamics, and if its sharp deterioration has been observed over the last period, then the manager begins to analyze the conditions under the contracts that have been concluded at that time.
The value of the loss of solvency determines
The results of the loss of solvency ratio are interpreted as follows:
- if the received value is more than one- this indicates a stable financial position and minimal risks of losing one's solvency in the near future;
- if less than one- the company is facing a real threat of losing its normal balance of payments, this is a critical value.
The reliability of the results obtained is influenced by the fact that only two time intervals are involved in the calculations: at the beginning and at the end of the period. More accurate results can be obtained by taking into account additional time intervals (at least 4).
Recovery of the solvency ratio
If the results of the solvency ratio turned out to be unsatisfactory, then the company's management must take measures to restore the balance of payments. Initially, you need to determine the reasons that led to insolvency. This could be:
- non-fulfillment of the production plan;
- increase in production costs;
- failure to fulfill the profit plan;
- lack of funding sources;
- growth in fiscal fees;
- insufficient efficient use of working capital;
- growth of accounts receivable, etc.
Depending on the primary reasons that led to the emergence of financial difficulties at the enterprise, a set of measures is being developed to normalize the situation.
There are several ways to restore the company's ability to fulfill its current obligations. Among them:
- sale of part of the property at market value;
- closure of low-profit branches and representative offices;
- measures to collect accounts receivable;
- suspension of long-term investment projects;
- reduction in entertainment expenses;
- optimization of the number of personnel;
- assignment of rights of claims for receivables;
- issue of additional shares;
- conversion / closure of production;
- modernization of production in order to reduce costs, etc.
In some cases, the loss of the balance of payments is only a temporary difficulty and the prompt response of the management can eliminate financial gaps. To assess the prospects for the normalization of the company's position, an appropriate coefficient is usually calculated. It reflects the company's ability to regain lost ground within six months.
If, based on the results of the analysis, the company has come to the conclusion that it is impossible to restore the balance with the funds available to it, it can declare its bankruptcy. Lenders will also analyze the company's ability to recover its economic position. If they decide that such a possibility exists, then the stages of rehabilitation or external management will be introduced.