Stock of financial strength

The stock of financial strength is an important indicator of the dynamic and promising activity of the enterprise. In fact, this is a critical point that determines the crisis volume of production.

The stock of the financial strength of an enterprise is determined by the difference between the volume of output by the fact and the volume of output at the break-even point.

Usually the percentage of safety factor is calculated in relation to the actual volume of output. As a result, it turns out how possible to reduce the release and sale of goods.

When examining the financial condition and profitability of an enterprise, it is necessary to know the margin of financial stability (breakeven zone). If you determine the profitability threshold of the firm, then the stability margin can not be calculated.

Brief instructions for determining the financial stability margin. The first way

1. It is important to determine how much it is necessary to reduce output so as not to incur losses. This value is expressed in the difference between the volume of sales of products under the plan and the break-even point. This indicator shows how much production should not be reduced. In terms of the planned volume of sales, risks or losses are calculated that relate to the costs of production.

2. Financial strength is calculated in the price expression by the formula:

The volume of realization under the plan * хР: breakeven point in numerical expression - х, Р - the price of one product.

- The second way. The company's revenue - the threshold of profitability - is another way to calculate the margin of safety.

- The third way. You can set the margin of financial strength by another method. It is determined by the indicator between real production and the profitability threshold. For this purpose, the value of the revenue difference of the enterprise and profitability is calculated.

The value of the calculation of financial strength:

1. The risk of loss of an enterprise will be less with a higher financial strength.

2. The stock of financial strength accurately indicates the stability of the enterprise or firm. Its calculation makes it possible to determine and assess the reality of the reduction from the sale of products, taking into account the break-even point.

3. In terms of the profitability threshold, you can see revenue, in which the company will not incur losses, but there will be no profit. These indicators determine the financial costs of production without taking profits.

To have a complete picture of the strength of the enterprise, you need to analyze the difference between sales and production. Then adjust the stock of financial strength taking into account the company's inventory . After this, it is desirable to calculate the margin and profit from sales.

Marginal profit is determined by the value of the difference in revenue from sales and the sum of variable costs for the total volume produced.

The profit from sales is expressed by the difference in revenue and the amount of fixed costs of the entire production volume.

It is necessary to remember: one of the signs of financial instability of the enterprise is a sharp reduction in the volume of stocks.

Such an indicator, as the profitability threshold, accurately indicates the practice of the conditions for the termination of production, if the firm does not pay back its costs. You can determine how to maximize profits in a rational way with these company indicators, reducing the cost of production in a particular area.

Entrepreneurs need to adhere to the following rule:

Revenue should exceed the profitability threshold, and goods should be produced more than their threshold value. In this case, profits will be guaranteed to grow.