Category: Money tips Release Date: 2006-08-31
Solvency is a measure of corporate risk an important indicator of
Typically, investors buy stock in the hope of a comprehensive understanding of the company's risks and benefits, while a company's solvency is a measure of the size of an important indicator of risk. Leverage can effectively improve the return on equity, but at the same time, the debt to the company will also bring the risk of insolvency. Before investing in the company's solvency analysis, and the shareholders that predict risk and protect the interests of an effective method.
Solvency that pay principal and interest on debt capacity. Short-term and long-term debt divided. Accordingly, the solvency and short-term solvency and long-term solvency of two kinds. For investors, the general is more concerned about the former, it is because if companies can not maintain a short-term solvency, naturally do not have the long-term solvency, even more can not meet the requirements of the shareholders for dividends. Even if a stage companies that are profitable, if not in time to fulfill the obligations to creditors may also be bankrupt. For example, China has been mighty Puma, Delong, Giant Group. So can only say that the solvency analysis is independent of the outside the analysis of profitability.
In general, current assets to current liabilities, the greater the difference between, that is, the more working capital, the company's short-term liquidity will be. However, due to the size differences exist between the companies, thus the index is not between companies in different comparable. Different companies in order to be able to compare between the horizontal, we can be transformed into the absolute value of the relative value, so the company can avoid the scale of differences in the impact of this factor. At present, relatively simple and popular method is through the current ratio or quick ratio (also known as acid test ratio) to the company's short-term solvency assessment. The current ratio is the ratio of current assets to current liabilities, quick ratio is the liquid assets to current liabilities ratio. The inventory from current assets (cash and its equivalents, short-term investments, accounts receivable, inventory), the deduction, you get liquid assets. The reason for excluding inventory, because inventory is relatively poor liquidity, and the value of the stock are more susceptible to market conditions and other factors, the impact of volatility. To eliminate the impact of stock of this analysis will be more insurance solvency indicators.
To G Qixia (600,533 market, information, advice, more), for example, according to the 2005 annual report data, you can calculate current assets (RMB 4,058,306,222.13) and current liabilities (2,613,225,580.52 yuan) derived the ratio of current ratio (1.55); by calculating the liquid assets (770,617,874.22 yuan) and current liabilities (2,613,225,580.52 yuan) ratio, quick ratio obtained (0.29). Of course, a company's data alone is not enough to speak for themselves. As a percentage indicator, and only put it where the comparison across the industry in order to see the company's status quo. G Qixia belong to the real estate industry with the industry's two other listed companies, the same indicators for comparative analysis, we can see the short-term solvency Qixia G is relatively weak, especially its quick ratio is low, indicating that the company has a lot of inventory backlog. As a real estate-based companies that they should increase the real estate sales.
Also affect the Company's short-term liquidity and other factors, such as the company's bank loans available indicators, be ready to realize the long-term assets and the reputation of solvency. If the company is high, these indicators will enhance the company's liquidity; and if the company exists or liabilities (contingent liabilities only in the financial statements disclosed in the notes where investors to more easily ignored), or the matter of guarantees, etc., To varying degrees, weaken the company's short-term solvency.
The analysis of long-term solvency of the company is relatively simple. Total liabilities by total shareholder's equity over the previous, we obtain a ratio, this indicator is often referred to as the debt / equity ratio. Also to G Qixia, for example, shareholder's equity (696,094,059.40 yuan) and liabilities (3,126,403,553.73 yuan) ratio is the debt / equity (4.49). With this target, the company's capital structure can have a general understanding of the situation. Another analysis of an important indicator of long-term solvency is the interest has been a multiple of the target company's EBIT and interest expense ratio to measure the company's ability to pay interest charges, often also called the interest coverage ratio. Have been of interest for multiple comparisons, as long as the minimum is higher than the previous year's data, can be from the perspective of ensuring the stability of the company's solvency. For the G Qixia, through the formula (8,642,068.68 net profit of 148,661,635 yuan + yuan + Interest income 79,601,238.67 yuan) / Interest 8,642,068.68 yuan, has been of interest can be calculated in multiples of (27.41). Similarly, only those ratios on the horizontal inter-firm comparison, in order to make the data more meaningful (see Table 2).
In comparison, G Qixia's debt-equity ratio is high, indicating the company's high degree of leverage, financial structure is very unstable and depression in the event of a phenomenon, the company will be faced with a huge debt pressure. A negative net operating cash flow is worse for the company's solvency. However, what is encouraging is that the company has been very high multiples of interest, indicating the operating status of its very good, if the strengthening of cash management, or has a strong ability to repay the interest.
In addition to the accounting statements to analyze the company's long-term solvency, there are a number of tables and external factors will also affect the company's long-term solvency. For these factors, investors should not be overlooked. Example, if a large number of the company's long-term rental business, it will form a long-term due to pay the rent, or the existence of a security company's responsibility, as well as contingent liabilities, that they will increase the company's long-term debt burden. In the financial statements which are not reflected in accordance with the relevant information needed to understand.
Finally, we need to add the point is that for solvency analysis, and can not fully understand the company's affairs. A company with a good solvency, only to ensure the company's current risk of bankruptcy is relatively low; and how to develop and profit is placed in front of the operator is more important issues. The analysis of the company can not be confined to one area, but should have a comprehensive understanding of their and the company put in the same industry to compare the company's business situation can have an overall grasp of.
