In order to know what is the current situation that an entity is going through, it is especially important to study what is the reality that lives according to different variables at the accounting level. One of them, liquidity. How to analyze this section? This data is not only significant in relation to the present, but also to the future since it allows an entity to observe its level of response to different circumstances. For example, it is convenient for an entity to know the immediate liquidity ratio.
Therefore, in this analysis it is especially important to address the solvency level presented by the entity that is the subject of this reading. There are different sections that can be presented in this exercise, one of them is the balance.
Relationship between income and expenses
In the business activity there are movements of entry and exit of money that must show a relationship of proportionality in order to guarantee the maintenance of the business without accumulating losses. To do this, it is necessary to calculate what are the different types of expenses that the entity has grouped the figures into two different categories: fixed and variable costs. But this image would be partial without the vision of what are the sales derived from the activity developed by teamwork.
The relationship of both planes can lead to the observation of the degree of benefit achieved and if it meets the expectation of the previous forecast. In addition, it is especially relevant that there is a possible balance between both elements of this analysis that although different in meaning are interconnected because they are complementary in the business.
What is the solvency level?
This component of the financial analysis can not only have its response in the context of the immediacy of the short term that looks at what happens in a near horizon, but also in the vision of the entity in a more long-term projection scenario. It is therefore necessary to distinguish the level of solvency in both moments of the calendar to have the measure of this issue in each case. This data focuses on the ability of the main entity to respond within the expected period to the possible payment of the different amounts with which it has this commitment.
The reality of an entity is not only linked to what happens externally but also to what happens internally. One of the advantages of this analysis tool is that the project manager can increase their understanding of it. In this attention to equity, among other aspects, the relationship between the asset and the liability is valued.
Therefore, the optimal monitoring of the financial analysis is especially important in any company to recognize its current situation and to establish realistic goals for the future. Thus, the head of a business has a representation of what the accounting situation is.