Analysis of the Operation and Financial Condition of the Enterprise

Analysis of the Operation and Financial Condition of the EnterpriseNet current assets that are at the disposal of an enterprise can convince creditors infavour of lending the resources to the enterprise. Net current assets provide a significantfinancial freedom for an enterprise in a situation of an increased rate of turnover of currentassets, impairment or loss of the value of assets.Optimal amount of the working capital depends on several factors: area of operations of an enterprise; size of an enterprise – the scope of production or sales; the terms of the enterprise crediting; speed of stock turnover; debtors collection period.4.3. Solvency measuresSolvency is one of the most significant criteria in assessment of the financialposition of an enterprise. It describes the situation when an enterprise has sufficient cashassets to settle at a short notice their open transactions with creditors, while the potentialcreditors after the assessment of these measures want to find out to what extent theenterprise is dependent on the capital borrowed or to what extent can it rely on its owncapital. These measures are especially important for assessment of the capacity to borrowof an enterprise. If the amount of liabilities is excessive an enterprise could be in danger ofinsolvency.The main features of insolvency are thus as follows: Sufficient amount of cash on the current bank account and in till; Due repayment of creditors debts.It has to be noted that the recommendable amounts should not be taken literally.There are situations when the share of equity from the total may be less than a half,however, the enterprise will still maintain high financial stability. This, first of all, is truein respect of enterprises with the operations related to a high asset turnover, permanentdemand for the goods for sale, well managed contacts with customers and sellers, the lowlevel of fixed costs (for example, trade and brokerage entities).This group of measures describes the asset structure. They are designed to: establish and describe the relationship of liabilities against the equity or thetotal amount of assets; assess the ability of an enterprise to increase its amount of debt; assist in the assessment of the ability of a firm to meet its debts on due date.The measures of this group reflect the ability of an enterprise to repay its long-termand short-term liabilities. These measures are especially important for existing and also forpotential creditors as they show to what extent the revenue of an enterprise cover theinterest and other fixed payments, as well as whether in the case of enterprise liquidationthere are sufficient assets to repay its debts. Shareholders are interested in this measure,because the accrued interest is considered to be an expense that increases the liabilities ofan enterprise. If the amount of loans and, therefore, also the amount of interest payable isexcessive, the enterprise may face the bankruptcy procedure.72