The optimal coefficient of overall financial independence found as a result of calculations does not yet allow us to draw full and objective conclusions. We still do not know anything about the company's ability to meet short-term obligations. If their level is unreasonably high, then the enterprise may not be able to pay current bills.
Further analysis requires the introduction of additional relationships that also describe the structure of sources of finance and assets, but at the same time take into account the speed of their circulation and the timing of the fulfillment of obligations.
The first group of such indicators are liquidity ratios. As a rule, the quick liquidity ratio is used, as it is more appropriate:
Quick ratio = (Current accounts receivable + Liquid inventory and finished goods + Cash and cash equivalents) / Current liabilities.
This ratio is also called the egypt email list coverage ratio. It shows the company's ability to pay off short-term liabilities using only highly liquid assets. If this ratio is less than one, it is a signal that the company may become insolvent.
The optimal value is considered to be between 1.5 and 2.5. Higher figures may indicate an irrational financial structure, as well as indicate the possibility of attracting external funds to increase the profitability of one's own resources.
Analysis of the financial independence ratio
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It is important that when determining the quick liquidity ratio, the numerator does not include materials, raw materials and expenses in unfinished production. Normally, they are not sold, and their transfer directly to finance leads to a disruption of the production process, resulting in losses.
Another additional indicator is the ratio of own working capital (or maneuverability):
Equity Maneuverability Ratio = (Equity – Non-Current Assets) / Equity
This metric can be used to determine the share of equity capital that is in the form of current assets.
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Example of calculating the financial independence coefficient
Let's calculate the KFN based on the balance sheet of enterprise "A".
Management balance of organization "A"
Management balance of organization "A"
For calculations, the following are required: balance sheet total (total assets), totals of sections III and IV:
KFN = 225/290 = 0.78.
For a detailed analysis, additional calculations are carried out:
Financial stability ratio = (225 + 30) / 290 = 0.88.
Quick ratio = (18 + 32 + 10) / 35 = 1.71.
Equity capital maneuverability ratio = (225 – 162) / 225 = 0.28.
Calculations show that all metrics have an optimal value. Enterprise "A" has a high level of stability, has sufficient working capital and can close short-term liabilities only through current assets with high liquidity.