In the analysis of financial stability, you can calculate the coefficient of maneuverability on equity. He characterizes the share of sources of own funds located in a mobile form. The flexibility ratio shows what portion of working capital engaged in circulation, and what is capitalized. Thus working capital in a mobile form, the company is free to maneuver.
To calculate the flexibility ratio use the following formula:
Km = SOS/SK, where
SOS working capital;
SK – equity.
In other words, the flexibility ratio is the ratio of own circulating capital of the enterprise to private sources of funding. The recommended value for this indicator is 0.5 or higher. Its value depends on the type of activity of the enterprise. In asset-intensive industries to its normal level, usually below, than material-intensive.
The amount of equity capital you can see in the third section of the liabilities side of the balance sheet. With regard to the level of working capital, it is a calculated value. You can find one of clubusacasino:
1) SOS = SK ISLANDS, where
SK – equity enterprises;
VA – non-current assets.
2) COC = OA – KO, where
OA – floating assets;
CO – current liabilities of the company.
The indicator defines the share of capital which goes to funding its current operations (the formation of current assets).
You have to consider that the dynamics of the flexibility ratio needs to increase. However, its rapid growth is testimony to the normal development of the enterprise. This is due to the fact that the increase in this ratio is possible with the growth of its own working capital or by reducing their own sources of the enterprise. So, the sharp increase of this indicator will automatically trigger a decrease in others, for example, the coefficient of autonomy, indicating an increasing dependence of the enterprise from creditors.