Another view on the analysis and assessment of enterprise’s financial stability

INTRODUCTION; ABOUT THE NATURE OF FINANCIAL STABILITY; METHODOLOGY FOR ANALYSIS OF ENTITY’S FINANCIAL STABILITY; APPROBATION OF THE ANALYSIS METHODOLOGY; CONCLUSION

Abstract

Abstract: The issue of enterprise’s financial stability is topical at all phases and stages of its development. Achieving and maintaining enterprise’s financial stability is a prerequisite for the successful development of its business in the context of market competition from operational and strategic point of view.

Financial stability reflects some important and fundamental economic relations that exist and are objectively manifested within the business of an enterprise. Such relations are described by means of relevant indicators whose values change under the influence of the economic operations and economic processes performed by the enterprise. Such relations and the indicators that describe them are objectively reflected in the enterprise’s financial statements. This means that the enterprise’s financial statements are the main source of information for the analysis and assessment of its financial stability. 

The resultative analytical information about the enterprise’s financial stability is useful both for the internal and the external users of information. Such information is especially important for the financial management, and for the enterprise’s management in general, for the purposes of making proper and reasonable decisions for the capital structure, for the funding the acquisition of resources necessary for the normal course of business, for the generation of positive cash flows and their allocation in time, for the achievement of positive financial performance during more than one subsequent reporting periods, for the establishment of the enterprise’s positive image on the competitive market. Information about financial stability is important for external users with regard to their business relationships with the enterprise.

This study is aimed at proposing a model for value assessment of enterprise’s financial stability based on the complex system of analysis indicators by referring to the nature of the financial stability and the existing indicators for its analysis and assessment.

Enterprise’s financial stability may be analyzed and assessed from two perspectives.

The first perspective refers to the financial stability as an independent object of the business analysis. This means that financial stability is analyzed and assessed as a resultative indicator. The idea is to apply appropriate methodology for defining the values of the different absolute and relative indicators comprised in the system of indicators thus developing a general value assessment of the enterprise’s financial stability. As a resultative indicator, the enterprise’s financial stability is formed and maintained under the influence of a number of direct factors. The principal factor to this effect is the enterprise’s capital structure. Therefore, the publication analyses and assesses the sensitivity of the financial stability under the effect of the changes in the enterprise’s capital structure.

Secondly, the financial stability is analyzed and assessed as a factor affecting other important financial aspects of the business. From this perspective, the financial stability is studied as a factor that has influence on the establishment and maintenance of the enterprise’s financial equilibrium. And in its turn, the financial equilibrium may be defined as a system of three interrelated elements – enterprise’s financial stability, liquidity and rate of return.

The object reviewed by this study covers the enterprise’s financial stability and the methodology for its analysis by offering an approach for its assessment.

The subject matter of the study covers the methodology for analysis and assessment of financial stability under the effect of the changes in the enterprise’s capital structure.