Academic journal article Asian Social Science

Theoretical Aspects of the Assessment of Economic Entities Financial Condition

Academic journal article Asian Social Science

Theoretical Aspects of the Assessment of Economic Entities Financial Condition

Article excerpt


The economic attractiveness of business entities for investors is an essential element in making decisions on the investment of financial resources into their development. An assessment of their financial condition plays an important role here, being an important characteristic of economic activity. The financial condition of economic entities is one of the most important indicators that reflect the productive capacity, distribution and use of own and borrowed financial resources, their adequacy and solvency. The issues of assessment of the financial condition of economic entities receive a lot of attention in the works of both domestic and foreign researchers, who offer a variety of valuation multiples, including various indicators, but the problem of multi-criteria selection has not yet been finally resolved. However, the financial condition of the economic entities as a scientific category is not considered by all academic economists, whose points of view and methods to its definition differ from their belonging to a relevant school of sciences.

Keywords: assessment of the financial condition, financial sustainability, solvency, liquidity, economic entities

1. Introduction

Formation of market relations in the Russian Federation is characterized by high volatility, instability and disproportionate development of the material and non-material production in various sectors of the national economy, competition between economic entities both on the commodity and capital markets.

Theory and practice of financial management are now becoming more and more relevant, because the owners of economic entities gradually realize that the management of the enterprise is largely carried out by means and with help of finance.

Financial indicators characterize the performance of any economic entity, regardless of the size and proprietary form, and are the main indicators of diagnoses that indicate the changes and allow developing a set of measures to support the economic equilibrium (Bobyleva, 2013, p. 12).

However, there is a need to investigate the nature of the research of the discussion issues in determining the uniformity of interpretation of assessment the financial condition of economic entities, as well as inclusion of other concepts, such as economic entities, self-regulatory entities of the economic domain, businesses, organizations, firms, institutions, organizations, companies, and so on. (Glukhov & Glukhov, 2013).

The financial condition of economic entities is directly dependent on the results of their industrial, commercial and financial activities. The purpose of the assessment of the financial condition of the company is to improve production profitability and strengthen financial stability as a basis for stable operation and fulfillment of its obligations to the budget, credit and financial institutions, suppliers and other contractors.

Assessment of the financial condition can be used both by the economic entity itself and the external market entities for transactions, contract executions, or for provision of information about its financial condition to third parties, representing either their own interests or the interests of the owners (founders).

Other economic entities, investors, credit and financial institutions and public authorities can act as the third parties, who treat the assessment of the financial condition as the main indicator when making decisions on investments, lending or entering into contracts for involvement in various projects.

2. Topicality of Research

2.1 Criteria for Assessment of the Financial Condition

Transformation processes taking place in the Russian economy are accompanied by transformation of the relationships arising between the state, economic entities and households, which represent a public (centralized) and private (decentralized) sectors of the financial system.

During the transition to functioning in a market economy, many Russian economic entities found themselves in a difficult financial situation, the risks of possible insolvency and bankruptcy increased, which generates an objective need for more efficient mechanisms to assess managerial decision-making that minimize the risk of mistakes of an economic nature. …

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