Coefficient of financial dependence

Understanding terminology is important not only to professional economists, accountants, sometimes it is necessary for people far from such a field of activity. Beginners also need additional information when conducting a financial analysis of the enterprise.

During summing up the results of the year, we have to operate with terms such as the coefficient of financial dependence. What does it mean? This indicator shows the degree of dependence of the company (company, firm) on third-party creditors and investors. It is the inverse of the index of the capital concentration of the firm itself. With the growth of the financial dependence of the enterprise, the dynamics of the increase in borrowed funds is observed. If the value of the indicator is equal to 1, the owner of the company independently finances its organization. With a value of 1.25, we can conclude that for every 1.25 rubles invested in the company's assets, twenty-five kopecks are borrowed. The indicator of financial dependence is widely used in practice.

In addition, the term "financial stability" is used. This is the factor that is the main factor in conducting a financial analysis of the enterprise. This value reveals to what extent the company is stable, independent of borrowed funds, how freely it is able to manage its capital.

You can define financial stability as the company's financial independence, in which the state of its accounts allows you to determine its guaranteed solvency. The following types of financial stability are distinguished, which are subdivided according to its degree:

1. Absolute stability. With it, complete independence from external creditors is observed. Loans made by the company for the purchase of reserves are covered by own working capital.
2. Normal stability. The company at acquisition of stocks involves normal sources of their covering.
3. Unstable state. In this case, the firm is forced to attract additional sources to cover the reserves.
4. Crisis state. It is characterized by the fact that the company has outstanding accounts payable.

Calculating the coefficient of financial stability of the enterprise, use the following indicators. The coefficient of financial dependence, which determines the extent to which the company's assets are financed at the expense of borrowed funds. If the company's own capital takes up too much, it can be disadvantageous for the owners of the company, since it imposes restrictions on its production capabilities. But most of the borrowed capital can undermine the stability of the enterprise, as a result of which the trust of counterparties falls to it.

In addition to this indicator, when analyzing the company's financial performance, the company's capital concentration ratios are calculated; Maneuverability, which has the organization's own capital; Coefficient, showing the concentration of borrowed capital, etc. The value of all these indicators (including the coefficient of financial dependence) depends on many factors. For example, such as the industry in which the enterprise is employed, the conditions for lending, and the structure of sources to cover the property. With their help, the dynamics of the financial structure and the stability of the company are evaluated. Qualitative indicators can be divided into two groups.

One will include the capitalization indicators that show the structure of the receipt of funds for the enterprise. The second - the indicators of the quality of expenditure of funds. They can be called coverage indicators. They assess the state of the enterprise and its ability to support the structure of the sources of funds.

To calculate the coefficient of financial dependence is necessary in order to control the share of borrowed funds in the total capital of the enterprise and to ensure that the indicator does not become very large. Otherwise, this will indicate a risky position of the enterprise and may result in bankruptcy.