To determine the solvency of the company, calculate a number of coefficients. The overall security of the organisation circulating assets, necessary for carrying out business activities and timely calculation of urgent liabilities reflects the current ratio. It is defined as the ratio of negotiable assets, which include finished products, raw materials, cash, accounts receivable, to the most urgent liabilities (accounts payable, short-term loans and borrowings).
The solvency of enterprises also characterizes the ratio of own working capital. For its calculation we use the formula: ber = COC/OA, where SOS working capital; OA – floating assets of the enterprise.
Own circulating assets are calculated as the difference between the value of equity and non-current assets and shows whether the company's own funds, necessary for the formation of current assets. The ratio of own working capital shows the proportion of current assets of enterprises are formed due to own sources.
Please note that the company is considered insolvent if at least one of conditions: the current ratio has a value less than 2 or a ratio of own working capital does not exceed 0.1.
If at least one of these indicators does not meet standard, calculate the rate of restoration of solvency. It is defined as the ratio of current ratio to its normative value:
KV = (KTL to + 6/T(K KTL - KTL n))/2, where
KTL to - current ratio on the accounting period end;
KTL n current ratio at the beginning of the reporting period;
T – the period;
6 regulatory period to restore the solvency.
If you restore the solvency ratio exceeds 1, this indicates that the company has a real chance to restore its solvency within 6 months.