Corporate Finance: Analysis Of Stability

If an enterprise does not have enough solvency, even if its profitability is high, it is also very dangerous.

The ability of enterprises to cope with emergencies is very weak, and the operation of enterprises is latent crisis.

Only when the stability of the enterprise is passed, can the conditions and foundation develop smoothly.

The shakedown analysis includes short term solvency analysis and long-term solvency analysis.

Short term solvency of enterprises, also known as short-term turnover capacity, refers to enterprises.

The ability to pay current liabilities.

Indicators commonly used to measure the short-term solvency are:

(1) liquidity ratio.

The mobile ratio, also known as the working capital ratio, is the most commonly used ratio to measure the short-term solvency of an enterprise. It is derived from current assets divided into current liabilities.

The current assets of a company usually include cash, securities, accounts receivable and inventories, while current liabilities are

Quick ratio is also called acid test ratio.

The formula is as follows:

Quick ratio = quick assets, current liabilities = (current assets, one stock, prepaid expenses). Current liabilities.

It is generally believed that the ratio of quick action to 100% is appropriate, neither too high nor too low.

(3) working capital.

Working capita refers to the difference between current assets and current liabilities.

Since the liquidation of current liabilities consumes current assets, it should be deducted from the current assets and the balance can represent the turnover capacity of the enterprises. Therefore, working capital is regarded as an important index to measure the short-term solvency of enterprises.

The long-term solvency analysis also refers to the analysis of the company's capital structure or financial structure.

This is because the corporate long-term solvency in the future has many factors that can not be controlled, and can only be evaluated indirectly through the analysis of the company's capital structure.

The so-called capital structure refers to the proportion of the enterprise's own funds and borrowed funds.

The specific indicators are as follows:

(1) the ratio of shareholders' equity to liabilities.

The capital of an enterprise comes mainly from shareholders and creditors, that is, stockholders' equity and liabilities.

The ratio of shareholders' equity to debt shows the relative proportion of the two funds.

The larger the ratio, the less debt the company has, the more secure the interests of the creditor are. On the contrary, it shows that the enterprise has too much debt and the financial structure is not sound enough. Once the recession happens, enterprises will have difficulty in paying debts and the interests of creditors will be less protected.

The ratio formula is:

Shareholders' equity to debt ratio = shareholders' equity and liabilities

(2) debt ratio and equity ratio.

The total assets of a company are equal to the total liabilities and the total amount of shareholders' equity.

The total amount of liabilities divided by the total amount of assets is the ratio of liabilities. The ratio of shareholders' equity to total assets is equity ratio, also known as the ratio of self owned capital.

The sum of these two ratios is equal to 100%. They are used to measure the ratio of funds supplied to creditors and shareholders in the total assets.

The formula is:

Debt ratio = total liabilities, total assets

Equity ratio = shareholders' equity and total assets

When the equity ratio is too low, that is, the debt ratio is too high, the protection of creditors will be reduced. However, if the equity ratio is too high, it will also reduce the role of financial leverage and be more adverse to shareholders.

Therefore, we must not be extreme in measuring these two ratios.

In addition, industry characteristics should also be noted, for example, the proportion of equity in the financial sector is generally much lower than that in other industries.

(3) the ratio of fixed assets to stockholders' equity.

This ratio can not only be used to test the debt paying ability of enterprises, but also shows whether the investment in fixed assets is appropriate and whether enterprises have financial risks exposed under long-term use of short-term funds.

The formula is:

Fixed assets to stockholders' equity ratio = fixed assets, total shareholders' equity

If the ratio is less than 1, it means that the funds needed to purchase fixed assets are all from shareholders, and the company is relatively stable.

If the ratio is greater than 1, it means that some of the funds needed for the purchase of fixed assets are from creditors.

(4) the ratio of net tangible assets to long-term liabilities.

Generally speaking, when obtaining long-term loans or issuing bonds, enterprises must use their tangible assets as collateral.

This ratio can be used to measure the level of protection of assets in liquidation value for long-term liabilities.

The net assets of tangible assets refer to the intangible assets which are not entity existing except total assets, such as goodwill, trademark right, patent right and concession.

Net tangible assets to long-term debt ratio = net tangible assets, long-term liabilities

When the ratio is greater than 1, the creditor with long-term liabilities has better protection.

(5) interest protection multiple.

Many analysts believe that unless the business is over, it is unlikely that the liabilities will be fully disposed of in the form of disposal of assets, while the common surplus will cover the principal and interest of long-term liabilities.

Therefore, it is necessary to analyze the relationship between surplus and interest expense.

Interest protection multiple, also known as earnings multiplier or interest earned multiple, is earned by the company's interest and income before interest divided by total interest.

Interest guarantee ratio = interest payable and pre tax profit, interest expense for the current period.