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Economic Analysis: Theory and Practice
 

Specifics of applying the comparative economic analysis methods in the assessment of financial position of an organization

Vol. 13, Iss. 38, OCTOBER 2014

Available online: 12 October 2014

Subject Heading: METHODS OF ANALYSIS

JEL Classification: 

Pages: 22-28

Vyborova E.N. Plekhanov Russian University of Economics, Moscow, Russian Federation
envyborova@yandex.ru

Financial health of an organization is a complex economic category, which defines that at a certain date an enterprise has various assets and liabilities, an ability to function and develop in a changing external environment, to satisfy the claims of creditors in the present and in the future, and that an enterprise has investment prospects. Sound financial standing is essential for effective operations of a firm. The financial standing and stability of enterprises are largely dependent on the optimal structure of their capital sources (capital gearing) and assets, predominantly, on the ratio of fixed and working capital, as well as on the balance of assets and liabilities. To evaluate the financial stability of a company it is necessary to determine whether it has necessary funds to discharge its liabilities; how quickly the funds invested in assets earn real money; how effectively the company uses its property, assets, equity and debt, etc. Therefore, the main purpose of a company's financial condition analysis is to study and assess the level of economic resource capacity, to identify and mobilize reserves to optimize resources and enhance their utilization efficiency. There are various methods and techniques to perform a company's financial standing analysis aimed at comparative evaluation. The application of methods and techniques largely depends on the skills of an analyst and the source database. The article addresses the specifics of applying different methods in the analysis of a company's financial position. These methods include the distance method, the sum-of-digits method, the sum of rankings method, the taxonomy method. The author compares the methods and specifies the mechanism of their adaptation to the analysis of an organization's financial position.

Keywords: comparative, economic analysis, method, financial health, organization

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ISSN 2311-8725 (Online)
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