AN APPROACH FOR ASSESSING THE BUSINESS ENTITY’S FINANCIAL POTENTIAL

Olha Chuniak ()
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Olha Chuniak: Khmelnytskyi National University, 29016, Ukraine

European Journal of Accounting, Finance & Business, 2020, vol. 13, issue 23, 167-175

Abstract: The paper examines the issues related to assessing the level of economic entities' financial potential. Approaches to determining the essential content of the financial potential category are analyzed, followed by its consideration as the ability of the business entity to rational and efficient use of financial resources. The main approaches to assessing the level of financial potential are considered, their main shortcomings are identified, which mainly consist in insufficient substantiation of defining the boundaries of levels. It is established that one of the most common approaches to solving the problem of financial potential assessment is the use of comprehensive index assessment technology based on financial ratios. The main methods for data normalization and convolution of initial indicators are given. The paper considers the approach to design a financial potential composite index of the enterprise, which is based on the normalization of the initial indicators by comparing them with the normative values with their subsequent convolution into a single measure using the distance method. A verbal scale for determining the levels of financial potential is proposed. A new approach to the interpretation of calculation results has been developed by defining and substantiating the bounds of the composite index according to each level of financial potential, which is based on the use of the Harrington desirability scale. Practical testing of the approaches proposed is executed for PJSC "Khmilnyk garment factory "Lileia" according to the data of 2017-2019. Based on the calculations, the level of financial potential is identified as "normal ", which allows us to conclude that the company's financial resources are sufficient for doing business.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:scm:ejafbu:v:13:y:2020:i:23:p:167-175

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