ABOUT ENTERPRISE’S SOLVENCY AND THE METHODS OF ITS ANALYSIS

Authors

  • Rositsa Ivanova UNWE – Sofia, Republic of Bulgaria

Keywords:

solvency, indicators, methods, analysis, information

Abstract

Solvency is a key indicator that characterizes the financial position and the financial stability of an enterprise.

The issue of solvency is relevant at all stages and phases of enterprise’s development. The relevance of this issue is due to the fact that solvency is a key business indicator that characterizes enterprise’s capability to:

  • settle its current liabilities to different creditors – financial institutions, suppliers, tax and social security system, etc.;
  • settle its liabilities in long-term perspective;
  • organize and carry out its normal course of business in flawless and routine manner;
  • achieve and maintain stable financial position and financial equilibrium;
  • continue as going concern and keep on functioning successfully from operational and strategic point of view.

The information obtained from the enterprise’s solvency analysis is intended for a wide range of internal and external users. Such information is crucial and useful for the owners of the capital, the financial management and the management in general for the purposes of making informed, justified and effective decisions for the management of the enterprise and its business.

The information obtained from the enterprise’s solvency analysis is useful for the various creditors of the enterprise – financial institutions, suppliers, National Revenue Agency, etc.

The objective of this publication is to present the indicators for analysis and assessment of enterprise’s solvency and to suggest on this basis guidelines for improvement of its analysis methods. The following tasks have been defined to achieve this objective:

  • to clarify the nature of the term “solvency”;
  • to distinguish the terms “solvency” and “liquidity” and to identify their specific features;
  • to define and classify the indicators for analysis and assessment of enterprise’s solvency;
  • to define the improved methods for analysis of enterprise’s solvency.

Various scientific methods have been used in the process of this study – induction, deduction, analysis and synthesis, as well as the relevant methods of the financial and business analysis – the methods of comparison, elimination, etc.

The study of enterprise’s solvency-related issues is based on the historic-logical and systemic approach. The author believes that namely the systemic approach perspectives may contribute to the identification and study of the objectively existing relations and dependences among the individual aspects of enterprise’s business and to the determination of the power and the direction of the impact of the factors on the occurred changes in the resultative indicators’ values. This point of view of the author allows to analyze and assess the enterprise’s solvency from two perspectives:

  • as a separate object of the analysis (resultative indicator);

as a factor affecting the dynamics of other key business indicators, such as the effectiveness of the enterprise’s business.

References

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Published

2021-12-15

How to Cite

Ivanova, R. (2021). ABOUT ENTERPRISE’S SOLVENCY AND THE METHODS OF ITS ANALYSIS. KNOWLEDGE - International Journal , 49(1), 193–199. Retrieved from http://ikm.mk/ojs/index.php/kij/article/view/4634

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