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Correction on the short-term solvency indicators

Author: TangWenBin HanZhiJun From: www.yourpaper.net Posted: 2007-11-19 04:17:47 Read:
Reflect the corporate financial evaluation of the short-term solvency, is one of the enterprises existing and potential debt investors an important basis for assessing the firms' solvency, but also business owners, managers, and other benefits related to the evaluation of enterprise comprehensive strength scale. However, the short-term solvency indicators in the calculation does not take full account of the measurement attributes attributes, quality, and accounting of corporate assets, liabilities, seems to be rather rough assessment of the firms' solvency, there are certain limitations sex. This article intends to reflect existing corporate short-term solvency of major financial evaluation to explore, to ensure that their enterprises can objectively reflect the short-term debt.

First, the existing short-term solvency indicators limitations

Existing common short-term solvency indicators: current ratio, quick ratio, cash ratio. The current ratio is the ratio of current assets to current liabilities, it shows how many current assets as repayment guarantee, the ability to reflect the repayment of maturing current liabilities of enterprises in the short term current assets into cash enterprise every dollar liabilities; under normal circumstances, liquidity The higher the ratio, reflecting the stronger the corporate short-term solvency, the more it can be guaranteed the interests of creditors. Quick ratio is a corporate liquid assets to current liabilities ratio, the so-called liquid assets, current assets minus illiquid and unstable inventory, prepaid expenses and current assets net loss of balance pending; speed dynamic ratio compared to the current ratio can more fully and reliably evaluate the mobility of corporate assets and its short-term solvency. The cash ratio is the ratio of enterprise-cash assets to current liabilities, cash-type assets, including enterprises owned by the monetary funds and securities held (ie, short-term investments in the balance sheet), which is net of liquid assets should The balance of accounts receivable; indicators can directly reflect the company's ability to repay current liabilities.

Current short-term solvency indicators in general reveals the solvency of the enterprise, but the calculation does not take full account of corporate assets, liabilities properties, quality and accounting measurement attributes, nor consider the off-balance sheet matters, there are some limitations on corporate solvency reflect.

(L) does not take full account of the differences on the attributes of the corporate assets. In accordance with the definition of current assets, current assets within a year or an operating cycle gradually consumed or realization of assets. But for more than a year or an operating cycle is not yet consumption or realizable assets, such as more than one year overdue uncollected receivables, inventory backlog is still as current assets accounting and are shown on the balance sheet, which The liquidity ratio is calculated by the lack of an objective basis; Similarly, the liquid assets as current assets realizable ability also still overdue receivables, makes quick ratio to be exaggerated to some extent overestimated. As for an advance payment, to be treated net losses, prepaid expenses and other current assets: or do not have the flow of nature;, or the assets of fact have been damaged or no longer exists; benefit deferred to a expenses. Therefore, in the calculation of the current ratio must be excluded from current assets.

(2) does not fully consider the quality of the corporate assets. For a business, if a higher proportion of its non-performing assets, enterprise asset quality is poor, the corresponding solvency will be greatly affected. Currently not taken into account in the calculation of the current ratio of non-performing assets of the firms' solvency. In fact, many companies there are a lot of non-performing assets, as more than three years have not been recovered, accounts receivable, long-term backlog of goods and materials, because of their poor asset quality, the actual value of the assets is significantly lower than the book value.

(3) does not fully consider the impact of the measurement attributes of corporate assets. According to the principles of historical cost accounting, the assets of the enterprise, in addition to the methods allowed by the relevant provisions of the State adjustments, in principle, should be then made the actual cost pricing. In general, however, the realizable value of finished goods in business inventories is higher than its cost, short-term investments in securities realizable value often deviated from the account value, and the current in the calculation of the current ratio, quick ratio The process did not consider the impact of such assets measurement attributes.

(4) does not fully consider the attributes of corporate liabilities. Receipts in advance "in current liabilities, generally using the company's products to pay, rather than liquid assets to repay, so they should be excluded from current liabilities in the calculation of the quick ratio, current ratio and cash ratio.

(5) does not consider the debt to short-term solvency. Liabilities have a lot of uncertainty, whether it occurs depends on the changes in the future related factors, such as discounted bills payable, external guarantees, pending litigation matters. Thus, in the calculation of the short-term solvency indicators, it is necessary to analyze and forecast the relevant factors of influence or liabilities occur, or the likelihood of liabilities; and according to the likelihood of liabilities, estimates or liabilities may The increase in current liabilities, but this effect is not taken into account in the calculation of the short-term solvency indicators.

Second, the short-term solvency indicators correction

Based on the above analysis, in order to overcome the limitations of enterprise solvency indicators, I believe that corporate assets and liabilities of the properties, quality and measurement attributes must be considered in the process of calculating short-term solvency indicators, but also consider the matter of off-balance sheet may the impact, in order to ensure the solvency indicators not be overestimated.

1. Flow ratios correction. Current assets less: (l) year or one operating cycle over uncollected accounts receivable, inventory backlog; (2) prepaid expenses; (3) Current assets pending a net loss; (4) for prepayments for the purchase or invest in long-term assets. Plus: (l) pending current assets net loss may be those who are responsible, insurers give a certain amount of damages or compensation, and pending the residual value of the asset itself; (2) Inventories, securities realizable value exceeds the book value section. Current liabilities will have to be considered likely to form part of the liabilities, such as notes receivable discounted, pending litigation.

Amended the current ratio is calculated as follows:

Current ratio = (current assets - the inventory of uncollected accounts receivable production more than a year or an operating cycle to pressure a pending prepaid expenses a net loss of current assets for purchase or invest in long-term assets Prepayments ten pending a net loss in the current assets may give access to those who are responsible, insured damages or compensation pending the residual value of the current assets of ten inventory, marketable securities realizable value over the carrying value of the) (current liabilities 10 or part of liabilities may increase current liabilities)

: Or liabilities may increase the part of current liabilities = or liabilities current liabilities probability

2 Quick ratio indicators correction. The quick ratio indicators of the amendment, the first to respond to the denominator of the quick ratio formula "current liabilities correction:

Excluded Receipts in advance ", Advances from customers in general, with the company's products to pay, rather than using the liquid assets to repay current liabilities (l), so it should be removed from the current liabilities; (2) Current liabilities to be plus or liabilities may increase the part of current liabilities. Then the quick ratio formula molecular "liquid assets" to correct: (l) promptly assets, net of prepayments for the purchase or invest in long-term assets; (2) deduction of more than more than one year or an operating cycle uncollected accounts receivable; (3) plus marketable securities, realizable value exceeds the book value part.

Amended quick ratio is calculated as follows:

Quick ratio (prepayments, a liquid assets for the purchase or invest in long-term assets over more than one year or an operating cycle uncollected receivables) (current liabilities Advances from customers 10 or liabilities may increasing part of current liabilities)

3 cash ratios corrected. The calculated molecular formula project "securities", by the book value measured in terms of historical cost adjusted for the realizable value of the cash ratio. Current liabilities "in the denominator projects adjusted to: (1) current liabilities excluded" Receipts in advance, because Receipts in advance to pay for general use the company's products, rather than cash or marketable securities to repay, so it should be from Current liabilities excluded; (2) to current liabilities plus or liabilities may increase the part of current liabilities.

The the revised cash ratio is calculated as follows:

Cash Ratio = (cash the 10 securities realizable value) Receipts in advance ten or part of the liabilities may increase current liabilities (current liabilities) should pay attention to the evaluation of short-term solvency problems
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