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Analysis Of Financial Indicators For Debt Paying Ability

2011/1/25 15:01:00 105

The solvency analysis includes short term solvency analysis and long-term solvency.

Analysis

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Short term solvency is the guarantee level for enterprises to repay current liabilities in full and in time. The main indicators are liquidity ratio, quick ratio and interest protection multiple.

The higher the ratio, the stronger the short-term debt paying ability of enterprises, but these ratios also have certain limitations in evaluating short-term debt paying ability.

1. liquidity ratio index.

The current ratio is used to reflect the ability of current assets to repay current liabilities.

index

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It can not be used as a measure of short-term business.

Liquidation

The absolute standard of ability.

First, enterprises have a strong guarantee of the liquidity assets to repay short-term debts, which does not mean that enterprises have enough debt paying funds.

Therefore, when examining the liquidity ratio, we should consider the short-term liquidity of each current asset, design a realizable coefficient, and amend the current assets of the enterprises, so as to get an objective and real liquidity ratio.

The two is the inconsistency of the valuation basis, which weakens the reliability of the short-term debt paying ability to a certain extent.

When calculating the current ratio, the short-term liabilities in the denominator are mostly calculated at the maturity value, while some of the current assets in the molecule are priced at present value (such as cash and bank deposits), some are based on historical cost (such as inventory and short-term investments), and others adopt future valuation (such as accounts receivable).

The inconsistent basis of valuation will inevitably lead to a decrease in the reliability of short-term debt paying ability.

Therefore, the ratio between the future value of the liquid assets and the future value of short-term liabilities can better reflect the short-term debt paying ability of the enterprises.

Three, the ratio reflects only the static state of the reporting date and has a strong whitewash effect. Therefore, we should pay attention to the change of the current assets and current liabilities before and after the accounting analysis period.

The proportion of each factor in the current assets has an important impact on the debt paying ability of the enterprises. The larger the proportion of the less liquid projects, the worse the debt repayment ability of the enterprises will be.

Enterprises can whitewash their current ratios by manipulating their liquidity or reducing their current liabilities, so that they can manipulate their size to mislead information users.

2. speed ratio index.

Quick ratio is a better indicator of the safety and stability of current liabilities than current ratio.

Although the ratio has made up for some shortcomings of the current ratio, the composition of quick assets has not been fully considered.

Although quick assets are strong in liquidity, they are not equal to the current payment capacity of enterprises.

When there is a large number of bad accounts receivable in the quick assets of enterprises, or when the short-term stock investment of enterprises is locked up and converted into real long-term investments, even if the ratio is greater than 1, it can not guarantee that enterprises have strong short-term solvency.

Therefore, this ratio should be combined with relevant indicators such as quick assets liquidity, accounts receivable turnover and bad debt reserve ratio.

3. interest protection multiple index.

The interest guarantee ratio reflects the guarantee degree of profitability to debt repayment.

This ratio can only reflect the ability of the enterprise to pay interest and the basic conditions of the enterprise's debt operation, and can not reflect the repayment ability of the enterprise's debt principal.

At the same time, the principal and interest of the enterprise repay the loan is not paid by profit, but is paid by the current assets. Therefore, when using this ratio, it can not explain whether the enterprise has enough liquidity to repay the principal and interest of the debt.

In addition, we should pay attention to the non cash cost when using this index.

In the long run, enterprises must have the funds to pay all their expenses, but in the short term, the non cash cost of depreciation of fixed assets, intangible assets amortization, etc., do not need to be paid in cash, but only need to be deducted from the current profits of enterprises.

Therefore, some enterprises can repay their debt interest even when the interest guarantee ratio is less than 1.