The denominator of the coefficient of recovery of loss of solvency is. Restoration (loss) coefficient of solvency. The solvency of the enterprise. What is it

Any enterprise that is engaged in entrepreneurial activity, in its characteristics, contains a solvency recovery factor, which manifests itself in the real possibility of restoring its own ability to make payments on these obligations for the corresponding period of time.

The time interval for calculating this indicator is most often taken half a year (6 months from the last reporting date).

In order to determine this indicator, they use the Methodological Provisions, in accordance with which the financial position of the enterprise is assessed. The methodological provision also establishes the limit value of the coefficient in order to determine the state of solvency of the enterprise.

The balance sheet solvency recovery ratio helps determine:

the degree of inability to pay bills and various types of debt;
financial position of the enterprise;
target orientation of entrepreneurial activity.

Balance sheet solvency recovery ratio formula

When calculating the solvency recovery ratio, the following formula is used:

Kv \u003d (K current liquid + 6 / T (K current liquid - K current liquid initial)) / 2

Here K current liq. – current liquidity ratio,

To current liquidation early per.

Calculation of the coefficient of loss of solvency of the enterprise

– current liquidity ratio,

T - reporting period.

The number 6 in the formula means a period equal to six months (the period of loss of solvency).

In order to find the current liquidity ratio (Kcurrent liquidity), it is necessary to determine the ratio of the volume of current assets to the available short-term debt:

To current liquidation = OA / KO

Here, OA is the value of current assets,

KO - short-term liabilities.

Indicator standard

The methodological provision, with the help of which the assessment of the financial position of enterprises is carried out, indicates the specific value of the indicator of the coefficient of restoration of solvency on the balance sheet.

If as a result of calculations a unit is obtained (with a billing period of six months), then this indicates that the company cannot really restore its own solvency.

If the formula for the recovery of solvency on the balance sheet results in a value of more than one, then we can talk about a real possibility of restoring solvency.

The formula for the recovery of solvency on the balance sheet and its calculation makes it possible to determine the recovery (loss) of solvency, including current liquidity, and also helps to predict the future activities of any company.

Examples of problem solving

The coefficient of loss of solvency is calculated for reference with a satisfactory balance sheet structure. If it is less than one, then, theoretically, there is a threat of a liquidity shortage. In this case, it is necessary to study in more detail the financial and economic condition of the enterprise.

Recovery (loss) coefficient of solvency

Banks and investors pay close attention to the analysis of the economic condition of the enterprise, its solvency. This knowledge will allow them to soberly assess the risks and protect themselves from losses.

One of the indicators of the financial analysis of the enterprise is the coefficient of loss of solvency (KUP). It is relative and is needed to predict the deterioration of current liquidity over the next few months (usually 3, 6).

Reference! Current liquidity includes current assets (property that is used to conduct business and bring profit to the company).

If the company loses solvency, then this is expressed in:

delays in utility and other payments;
untimely repayment of receivables;
missed payments on loans and advances;
having other debts.

All this negatively affects the business reputation of the enterprise, its credit history, and also entails real financial losses (fines, penalties, forfeits). The optionality of the company also repels investors, characterizes it as unstable.

Formula

KUP is found by the formula:

KTL NP - current liquidity ratio at the beginning of the period;
KTL KP - current liquidity ratio at the end of the period;
T - period (in months);
3 - the number of months for which the coefficient is calculated;
2 - current liquidity ratio standard.

Thus, to find the estimated value of the indicator, you need to calculate several other economic indicators.

Note! If the current liquidity and working capital ratio is higher than the normative value, then only in this case it makes sense to calculate the CMC. That is, the indicator is found with a satisfactory balance structure.

Calculation example

An example of calculating the PMC is given in the table (download in excel).

Thus, for the first half of 2017, the CAP was below 1. This means that in the next 3 months, the loss of solvency was expected. But this did not happen, and in the second half of the year the value of the indicator was already more than 1.

Rice. 1. PMC diagram

Normal value

The resulting value is compared with one: if it is less than 1, then the company has serious problems with solvency, and there is a big threat of delay. If the CAP is greater than 1, then the situation is stable, there is no likelihood of a deterioration in the financial condition.

Important! The value of the coefficient should be treated critically, it only indicates the likely occurrence of problems, but does not guarantee that they will definitely come. Even if the value of the indicator is less than 0, then the enterprise can be recognized as solvent. Therefore, for a more accurate analysis of the situation, the indicator is found in parallel with the overall solvency ratio and the severity ratio of overdue obligations.

To increase liquidity to the normative value, you can use the following methods that contribute to the restoration of the situation:

sale of own property at market price;
cost reduction (removal from production of unprofitable products, reduction of the branch network, personnel reshuffles);
suspension of investment in other projects;
reduction of representation expenses;
increase in the authorized capital and contributions of the founders;
attracting credit funds for a specified period;
placement of bonds.

You can learn more about liquidity, its types, ways to increase it from the video:

Summary

It is worthwhile to calculate the CMC for reference in order to have time to notice any changes in the company's liquidity supply. And although many experts criticize the indicator, in any case it will indicate a possible loss of solvency, and if there is such a threat, then it is worth delving into the analysis of the financial and economic condition of the company in more detail.

Questions and answers on the topic

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Solvency - timely repayment of the enterprise's debts to creditors, counterparties, contractors within the agreed time frame. This is an important criterion for the stable operation of any company, a guarantee of a stable financial position. Banks and investors pay close attention to the analysis of the economic condition of the enterprise, its solvency. This knowledge will allow them to soberly assess the risks and protect themselves from losses.

One of the indicators of the financial analysis of the enterprise is the coefficient of loss of solvency (K UP). It is relative and is needed to predict the deterioration of current liquidity over the next few months (usually 3, 6).

Reference! Current liquidity includes current assets (property that is used to conduct business and bring profit to the company).

If the company loses solvency, then this is expressed in:

delays in utility and other payments;
untimely repayment of accounts receivable;
missed payments on loans and advances;
having other debts.

Formula

To UE is found by the formula:

K TL NP - current liquidity ratio at the beginning of the period;
K TL KP - current liquidity ratio at the end of the period;
T - period (in months);
3 - the number of months for which the coefficient is calculated;
2 - current liquidity ratio standard.

Thus, to find the estimated value of the indicator, you need to calculate several other economic indicators.

Note! If the ratio of current liquidity and working capital is higher than the normative value, then only in this case it makes sense to calculate K UP. That is, the indicator is found with a satisfactory balance structure.

Calculation example

An example of the calculation of K UP is given in the table (download in excel).

Thus, for the first half of 2017, the CLE was below 1. This means that in the next 3 months, the loss of solvency was expected. But this did not happen, and in the second half of the year the value of the indicator was already more than 1.

Normal value

The resulting value is compared with one: if it is less than 1, then the company has serious problems with solvency, and there is a big threat of delay. If K UP is greater than 1, then the situation is stable, there is no likelihood of a deterioration in the financial condition.

To increase liquidity to the normative value, you can use the following methods that contribute to the restoration of the situation:

sale of own property at market price;
cost reduction (removal from production of unprofitable products, reduction of the branch network, personnel reshuffles);
suspension of investment in other projects;
reduction of representation expenses;
increase in the authorized capital and contributions of the founders;
attracting credit funds for a specified period;
placement of bonds.

You can learn more about liquidity, its types, ways to increase it from the video:

Summary

It is worthwhile to calculate CUE for reference in order to have time to notice any changes in the company's liquidity supply. And although many experts criticize the indicator, in any case it will indicate a possible loss of solvency, and if there is such a threat, then it is worth delving into the analysis of the financial and economic condition of the company in more detail.

One of the most important economic indicators of the enterprise is the solvency ratio. It indicates the firm's ability to make mandatory payments on time. In the process 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 obligations; pay salaries to your employees, etc. Payment failures indicate problems with the company's solvency and are a sign of possible bankruptcy.

The solvency ratio is

The solvency ratio reflects the ability of the enterprise to fulfill its payment calendar without violating the deadlines. To maintain the balance of payments, the company must have the necessary funds and sufficient liquid assets to pay off all creditor claims. Liquid assets are various highly liquid investments that are easily convertible into cash and are subject to insignificant inflationary and other risks of changes in value. This also includes an overdraft facility opened by the bank for the company.

Thus, the company can remain solvent even in the absence of money in the accounts, when it has the opportunity to quickly sell its assets to get rid of debts.

To analyze the loss of solvency of the company, financial ratios are used, thanks to which it becomes possible to determine this indicator in numerical terms. One of them is the coefficient of loss of solvency.

It displays the probability that the firm's current liquidity will worsen over the next quarter (3 months). It is calculated on the basis of the balance sheet data (form No. 1).

The main purpose of the ongoing financial analysis is to evaluate the company's assets and their relationship with liabilities and equity. 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 coefficient values at the end and beginning of the reporting period.

The formula for calculating the loss of solvency ratio was approved by the manual of the Federal Office for Bankruptcy in 1994. According to this document, the formula looked like this:

K1 + 3 / P (K1-K2) / 2.

In the given formula:

K1- this is the actual value of KTL (current liquidity ratio) at the end of the period;

K2 is the actual value of KTL at the beginning of the period;

2 - normative value of KTL;

3 – the number of months for which the coefficient is calculated;

P– period in months according to the report.

It can be seen that the solvency loss 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 is calculated as the ratio of current assets to short-term liabilities. It cannot be less than 2 (i.e. assets are twice the liabilities).

Current assets may include stocks, cash on hand and current accounts, accounts receivable, short-term investments (within 3 months). Liabilities are understood as accounts payable, loans and credits, debts to shareholders and founders.

When is the score calculated?

This coefficient of loss of solvency is one of the key ones in the management financial analysis of the enterprise. It allows you to prevent the loss of solvency and take timely measures to prevent the onset of such a negative scenario. In the event of failures to pay its obligations, the company risks losing its competitiveness, the trust of partners, and incurs additional costs for paying penalties and fines.

The results of the analysis allow the company to plan its financial activities, distribute cost items in terms of their priority in 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 identify signs of fictitious bankruptcy (when the company actually has the funds to pay off obligations to creditors, nevertheless declares its insolvency). Usually, the solvency loss ratio is calculated in dynamics, and if its sharp deterioration has been observed in the last period, then the manager begins to analyze the conditions under the contracts that have been concluded at the given time.

The value of the loss of solvency determines

The obtained results of the loss of solvency ratio are interpreted as follows:

if the received value is greater than one- this indicates a stable financial position and minimal risks of losing your solvency in the near future;
if less than one– a real threat to lose the normal balance of payments hung over the company, this is a critical value.

The reliability of the results obtained is affected by the fact that only two time periods 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).

Restoration of solvency ratio

If the results of the solvency ratio turned out to be unsatisfactory, then the company's management needs to take measures to restore the balance of payments. Initially, you need to determine the reasons that led to insolvency. It could be:

non-fulfillment of the production plan;
increase in the cost of production;
non-fulfillment of the profit plan;
lack of funding sources;
growth of fiscal fees;
insufficiently efficient use of working capital;
increase in 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 current obligations. Among them:

sale of part of the property at market value;
closure of low-profit branches and representative offices;
measures to collect receivables;
suspension of long-term investment projects;
reduction of hospitality expenses;
headcount optimization;
assignment of rights to claims on receivables;
issue of additional shares;
reprofiling/closing 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 prompt management response can eliminate financial holes. 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 positions within six months.

If, after analysis, the company came to the conclusion that it is impossible to restore the balance with the funds available to it, it may declare bankruptcy. Lenders will also analyze the ability of the enterprise to restore the economic situation. If they decide that such a possibility exists, then the stages of recovery or external management will be introduced.

2.1. The main indicator characterizing the presence of a real opportunity for an enterprise to restore (or lose) its solvency within a certain period is the coefficient of restoration (loss) of solvency.

In the event that at least one of the coefficients listed in section I is less than those indicated in paragraph 1.2, the solvency recovery coefficient is calculated for the period set equal to 6 months.

In the event that the current liquidity ratio is greater than or equal to 2, and the equity ratio is greater than or equal to 0.1, the solvency loss ratio is calculated for a period set equal to 3 months.

2.2. The solvency recovery ratio is determined by formula (3.a) as the ratio of the estimated current liquidity ratio to its set value. The estimated current liquidity ratio is determined as the sum of the actual value of the current liquidity ratio at the end of the reporting period and the change in the value of this ratio between the end and the beginning of the reporting period in terms of the solvency recovery period, set equal to 6 months.

K1f + 6 / T (K1f - K1n) K3 = ────────────────────── , (3.a) 2 reporting period; liquidity, K1norm = 2; 6 - the period of restoration of solvency in months;

The solvency recovery ratio, which takes a value greater than 1, calculated for a period of 6 months, indicates that the enterprise has a real opportunity to restore its solvency.

The solvency recovery ratio, which takes a value less than 1, calculated for a period of 6 months, indicates that the company has no real opportunity to restore solvency in the near future.

2.3. The coefficient of loss of solvency is determined by the formula (3.b) as the ratio of the estimated coefficient of current liquidity to its established value. The estimated current liquidity ratio is determined as the sum of the actual value of the current liquidity ratio at the end of the reporting period and the change in the value of this ratio between the end and the beginning of the reporting period, recalculated for the period of insolvency, set equal to 3 months.

K1f + 3 / T (K1f - K1n) K3 = ──────────────────── , (3.b) K1norm where: K1f - actual value (at the end of the reporting period) current liquidity ratio (K1); К1н - the value of the current liquidity ratio at the beginning reporting period; K1norm - normative value of the coefficient of the current liquidity; K1norm = 2; 3 - the period of loss of solvency of the enterprise in months; T - reporting period in months.

Liquidity and solvency indicators

These indicators are often of interest to employees of credit departments of banks. These indicators are needed by banks in order to be sure that the company has assets (cash and securities) that can be quickly foreclosed. Other indicators of this group tell whose funds the potential borrower uses more - his own or borrowed.

Overall coverage or current liquidity ratio

This indicator allows you to evaluate how the company copes with current obligations, that is, with its day-to-day payments. It is calculated like this:

OA: KO where

OA - the amount of current assets of the enterprise (line 290 of the Balance);

KO - the amount of short-term liabilities of the company (that is, which must be paid during the year) (line 690 of the Balance - line 640 - line 650).

(Lines 640 and 650 - deferred income and reserves for future expenses - have nothing to do with short-term debt.)

Experts believe that this indicator should be greater than one. If the coefficient turned out to be less than one, then this means that the company cannot cope with its current obligations.

An example from the above Balance:

At the beginning of the year - 30,410: 11,195 = 2.7

At the end of the year - 32,120: 13,460 = 2.39.

The indicator at the end of the year decreased slightly compared to the indicator at the beginning of the year. You have to figure out why.

Intermediate (term) liquidity ratio.

The intermediate liquidity ratio is determined by the following formula:

(KFV + DS + KDZ): KO, where

KDZ - short-term receivables of the enterprise, that is, with a maturity within 12 months after the reporting date (line 240 of the Balance);

The value of this indicator should be higher than 0.5.

Stocks, VAT and long-term receivables are removed from the assets involved in the calculation, since it is almost impossible to sell such assets in order to quickly receive money.

In our example:

At the beginning of the year - (620 + 550 + 8340): 11,195 = 0.85.

At the end of the year - (9300 + 590 + 700): 13,460 = 0.79.

The indicators are very good, but by the end of the year they dropped. Therefore, it is better to calculate the 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 by the formula:

(KFV + DS) : KO, where

KFV - short-term financial investments (line 250 of the Balance);

DS - cash (line 260 of the Balance);

KO - the amount of short-term liabilities (line 690 of the Balance - line 640 - line 650).

Its optimal value ranges from 0.15 and above.

The calculation includes money and securities. It is believed that securities can be sold instantly, that is, it is the same money.

At the beginning of the year - (620 + 550): 11,195 = 0.1.

At the end of the year - (590 + 700): 13,460 = 0.09.

This is not a very good result. All previous good figures were based on the fact that the company has many debtors. In order to unequivocally 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 obtaining debts.

Equity ratio

To calculate this most important indicator, the formula is used:

(SK - VNO): OA, where

SC - equity (line 490 of the Balance);

VNO - non-current assets (line 190 of the Balance Sheet);

ОА - current assets (line 290 of the Balance).

This indicator should not be lower than 0.1 (if lower, the company may be considered bankrupt).

At the beginning of the year - (29,705 - 13,490): 30,410 = 0.53.

At the end of the year - (30,655 - 14,995): 32,120 = 0.49.

These are good indicators.

If the indicators of the current liquidity ratio and the equity ratio are below the norm, this means that the company is on the verge of bankruptcy. Finally, to verify this possibility allows solvency recovery ratio. If this indicator is greater than one, then the company has a real opportunity to restore its solvency.