Peculiarities of liquidity and solvency management of "ARM-ECO" LLC
Students Name: Ososkalo Sofiia Leonidivna
Qualification Level: master (ESP)
Speciality: Finance, Banking and Insurance
Institute: Institute of Economics and Management
Mode of Study: full
Academic Year: 2022-2023 н.р.
Language of Defence: англійська
Abstract: Liquidity and solvency management research helps business entities understand their current financial situation and develop strategies to maintain financial stability. Today, when the economic situation varies, businesses are faced with serious challenges (pandemic, war, high inflation), so the study of the level of liquidity and solvency becomes even more important, giving the opportunity to identify and respond to risks related to their financial stability. The object of the study is to analyze the liquidity and solvency of the company "ARM-ECO" LLC. The subject of the ICR is the theoretical and applied principles of assessing the liquidity and solvency of the ARM-EKO LLC. The purpose of the study is to find and implement ways to improve the liquidity and solvency management policy and to identify the main factors that affect the functioning of ARM-ECO LLC. The work consists of three sections: theoretical-analytical, experimental-prognostic and recommendatory. Studying the works of scientists gave an idea of the diversity of studies on liquidity and solvency. Thus, A.P. Doroshenko assesses liquidity as the company’s ability to pay short-term bills, debts, and quickly sell assets in order to obtain cash in case of need. [1] It was determined that when the enterprise is liquid, the amount of available current assets exceeds short-term liabilities [3, p. 81]. It was found that solvency is a broader concept and subordinates to the assessment of the object’s liquidity, including its investment attractiveness and business reputation. [5, 6, p. 79-81] Tenytska N. considers solvency as the ability to fulfill short-term, medium-term and long-term financial obligations and continue the work of the enterprise in the future. [8] Based on the analysis of the financial condition of the selected object - ARM-ECO LLC, it was found that the company works mainly on borrowed funds, but has received a net profit from its activities for the past 5 years, despite the influence of negative factors. At the same time, there is a negative trend in revenue and cost. The coefficient analysis indicates a decrease in the business activity of "ARM-ECO" in 2022 and a high dependence on external creditors, while profitability gradually increases in 2022. The study of liquidity management and solvency of "ARM-ECO" LLC showed that the object’s balance sheet does not meet the condition of absolute liquidity during the entire reporting period, but a conclusion can be drawn regarding the improvement of the general level of liquidity during 2018-2021 and the decrease of liquidity in 2022 to level of 2018, which is the result of the influence of external negative circumstances. Therefore, at ARM-ECO LLC there is an insufficient level of liquidity, a decrease in the efficiency of working capital management, and a deterioration in solvency. The second part of the work is devoted to the study of the internal and external environments in which ARM-ECO LLC operates using a SWOT analysis. As a result, the following alternatives were proposed: search for consumers of goods on the European market, cooperation with foreign partners, participation in international/national tenders, improvement of the investment strategy to increase income, retraining of personnel, active participation in the reconstruction of business affected by the war. The statistical method of correlation-regression analysis was applied to assess the relationship of individual components to the main indicator of solvency and liquidity - the coverage ratio. To build the model, the volumes of stocks and received revenue from the sale of "ARM-ECO" goods/services were used. A 1% increase in the amount of stocks at the enterprise will cause an increase in the coverage ratio by UAH 4, and a 1% decrease in revenue from the main activity will have a negative impact. Forecasting the value of the coverage ratio and the level of indebtedness of "ARM-ECO" showed a downward trend in the coverage ratio and an increase in the level of debt in 2023. A scientific study of the relationship between liquidity and solvency and the investment attractiveness of ARM-ECO LLC and its 9 main competitors showed that the engineering industry was less attractive to investors in 2020, as the integral ratio decreased, and ARM-ECO LLC was in the penultimate place in terms of investment attractiveness in 2020. A model for improving liquidity and solvency for ARM-ECO LLC is presented. [37] and a search was made for ways to solve the identified problems at the enterprise to improve its situation. It is proposed to master new sales markets for the sale of products, to improve the policy of relations with debtors and to lease a part of fixed assets to increase financial results. As a conclusion, the proposed recommendations will increase the level of liquidity and solvency of ARM-ECO LLC. Keywords: liquidity, solvency, analysis of financial condition, investment attractiveness, recommendations. References: 1. Doroshenko A.P. Assessment of liquidity and solvency in the context of diagnostics of the general financial condition of the enterprise. Efficient economy. 2013. No. 2. Electronic source: http://nbuv.gov.ua/UJRN/efek_2013_2_37. 2. Lopatovska O., Ponomaryova K. To the question of the economic essence of enterprise liquidity. Actual problems of modern science, technology development and management: a collection of theses of reports of the III International Scientific and Practical Conference; in general of science ed. Doctor of Economics of Science, Assoc. A. V. Savitsky - Khmelnytskyi, 2023. - 247 p. 3. Orekhova K. V., Chelombytko Yu. M. The role and place of liquidity and solvency of the enterprise in the modern economic environment. Financial and credit activity: problems of theory and practice. 2014. No. 1 (10). Electronic source: http://fkd.org.ua/article/viewFile/29210/26249. 4. N. Vlasova. Justification of the system of indicators for assessing the level of liquidity and solvency of retail trade enterprises / N. Vlasova, P. Smirnova [Electronic resource]. – Access mode: http://nbuv.gov.ua/node/2116. 5. Tenytska N.B., Grishko Yu.S. Theoretical aspects of assessing the company’s solvency in modern conditions. Global and national economic problems. 2015. No. 5. P. 372-376. 6. Lashchyk I., Nesplyak H., Yaruta V. The model of management of liquidity and solvency of the enterprise. Socially competent management of corporations in the conditions of behavioral economics: resp. ed. O. M. Polinkevich, L. V. Shostak. - Lutsk, 2020. - 612 p.