International Journal of Management and Economics Fundamental
103
https://theusajournals.com/index.php/ijmef
VOLUME
Vol.05 Issue 06 2025
PAGE NO.
103-107
10.37547/ijmef/Volume05Issue06-21
Analysis Of The Financial Condition Of Economic
Entities Using Quantitative Methods
Fayziyev Umurkul Shuxratovich
Acting Associate Professor, Department of Financial Analysis, Tashkent State University of Economics, Uzbekistan
Received:
13 April 2025;
Accepted:
18 May 2025;
Published:
29 June 2025
Abstract:
The article presents the theoretical foundations of the financial situation of enterprises and describes
the views of various scientists. Also, Examination of economic reality requires a broad spectrum of methods for
the analysis of economic operators situation. Economic entities operating in the financial sector such as other
economic sectors have distinct individual-specialized methods of "market recognition". Striving for the
globalization and internationalization trends requires from the enterprises to undertake continuous processes,
analysis and situation control, which mostly affects the financial and innovative sphere. The steps taken in this
direction by the management staff, must have a basis in real performance results, which is achieved through all
kinds of analysis. Quantitative methods, regardless of business sector, relatively enable to determine precisely
the company condition and estimate their expected outcome. Additionally the use of non-standard economic
methods for financial data, allow you to look at the situation with new "fresh" angle. The author in the article
presents some mixed methods under which the managers will be able to interpret financial data based on the use
of mathematical and statistical methods.
Keywords:
Analysis, finance, economics, quantitative methods, financial condition, financial analysis, economic
analysis, financial stability, solvency, liquidity, profitability, business activity, bankruptcy.
Introduction:
The study of the economic reality
requires business entities to use a wide range of
methods for the analysis of its situation. Entities
operating in the financial sector like other separate
economic sectors possess individual
–
specialized
methods to recognize the market. [1] Following the
trends of globalization and internationalization
requires enterprises to undertake continuous
processes, analyses and control of the situation which
most frequently concern the financial and innovative
sphere. [2] The steps in this area undertaken by the
management staff must have the basis in the actual
results which are achieved through all types of
analyses. Quantitative methods, irrespective of the
business sector, relatively precisely allow to determine
the condition of the company and assess their expected
result. Additionally, the use of non-standard economic
methods for the financial data allows to look at its
situation from a new ‘fresh’ perspective. In the paper,
the authors present a few methods on the basis of
which the management staff will be able to interpret
the financial data based on the use of mathematical-
statistical methods. The analysis of the financial
condition of the enterprise takes place in the current
economic situation, caused by the increased influence
of various risk factors, which can weaken the financial
position of the enterprise. Efficient and effective
management of the activity of the enterprise requires
the involvement of numerous specialists from many
different fields. In economic terms, companies are
required to indicate the opportunity for development,
therefore, generally
–
innovation. Very little emphasis,
particularly with reference to the development of
enterprises from the SME sector, is put on the
performance of analyses which can reveal the mistakes
made by the management staff. Medium and smaller
entrepreneurs, in most cases, are oriented towards a
single analysis which will allow to answer the question
concerning how much they can earn due to specific
activity/investment in the nearest future. Obviously, all
large effectively managed businesses know that it takes
time to see the effects of the investment and the costs,
according to forecasts, will be reimbursed in a specific
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
percentage Thus, analysis of the financial condition of
an enterprise is the most important area of the
enterprise’s activity, as it allows timely adoption of
certain management decisions aimed at strengthening
it.
Analysis of literature
To be competitive on the market the enterprise must
have certain financial resources to engage in
investment activities. The funds taking part in the
activities of the enterprise may come from own sources
or external ones. Each form of financing is dependent
on the financial and legal situation of the company as
well as on its policy of financial management. “Financial
condition
–
this is one of the most important
characteristics of the activities of economic entities,
which reflects the availability of financial resources, the
appropriateness and efficiency of their placement and
use, solvency and financial stability” . [3]
“Financial condition
- the state of the enterprise is one
of the main economic categories. This qualitative
characteristic determines the following aspects of the
company’s functioning: competi
tiveness; prospects for
partnership; degree of confidence in achieving the set
goals. The financial condition as a whole is a category
of an ambiguous nature. The system of indicators that
form the content of the concept of “financial condition”
reports on the availability of financial resources at the
enterprise, sources of their receipt, the ability to repay
debts on loans and credits in a timely manner”. [4]
Under the financial condition of an enterprise is
understood as the characteristics of the composition
and placement of funds, the structure of their sources,
the rate of capital turnover, the ability of the enterprise
to repay its obligations on time, as well as other factors.
[5] One of the methods widely discussed in the
literature in the field of financial mathematics is the
investment portfolio. Its construction should include
such securities which will maximally reduce the risk
taken and will not reduce rates of return. [6] The
relationship of rates of returns of some securities with
others constitutes an important problem. The solution
is the use of the correlation coefficient of rates of
return, which is the measure of this relationship. The
rate of return is the amount of the investor’s benefits
to be achieved in a given period from the invested
capital.
ANALYSIS AND RESULTS
The study of the relationship resulting from the
calculation of the correlation should be considered in
the short-term perspective in spite of the calculations
based on historical data. [7] In long periods, the
overwhelming number of macroeconomic phenomena
is characterized by slow, continuous growth. In turn,
short-term volatility frequently hinders this process.
The components of the economic macroenvironment
are very often created by the (long-term) trend, (short-
term) fluctuations and random deviations. The
elements of the environment tend to return to the
state of long-run equilibrium every time after the
occurrence of any changes which are associated with
the functioning of external forces.
The state of long-run equilibrium determines the
situation which the system strives for after prior being
thrown off equilibrium and which will be achieved after
finite time under the circumstances in which it is not
subjected to external forces.
Testing the relationships, first of all, consists in
eliminating the occurrence of so called spurious
regression. The validity of its verification is based on the
assumption that nonstationary variables, which are not
related to each other in the cause and effect context,
on the basis of high value of the correlation coefficient,
very often indicate statistical significance of their
relationship. On that basis, there is built the model
which in fact does not meet the assumed expectations.
The causative agent of the occurrence of spurious
regression is taking into account nonstationary
variables in the model, which are not linked by
cointegrating relationships. The foundation of the
assumptions of the occurrence of the phenomenon of
spurious regression is the existence of the relationship
defi
ned as “the rule of the thumb” (the calculated value
of the correlation coefficient is higher than the
calculated value of the empirical statistics applied for
the study of the autocorrelation with the Durbin-
Watson test). The data analysis allows to assess the
regression function and to obtain information on their
variability.
Additionally, there can be applied ECM (Error-
Correction Model), which is the model for increments
of variables, enriched with error-correction parameter.
ECMs provide an opportunity to distinguish long-term
and short-term relationships. As a result, it is possible
to draw conclusions on the basis of the models
characterized by spurious regression with reduced
probability of their occurrence. The theory in the field
of cointegration was tested on the basis of the same
data which were used to create the investment
portfolio. The study of the relationships, based on the
expected rate of return, allowed to determine
regression, where the intercept α 0 amounted to 0.9%
–
therefore, such a mean value is taken by the
endogenous variable of the expected rate of return on
Shares of the bank (A), when the explanatory variable
of the expected rate of return on Shares of the bank (B)
assumes zero value. An increase in the value of the
expected rate of return on Shares of the bank (B) by 1%
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
will bring about an increase in the expected rate of
return on Shares of the bank (A) by 54.1%. The
significance of the structural parameters indicates the
appropriate selection of the explanatory variable
–
the
expected rate of return on Shares of the bank (B). The
mean value of R 2 coefficient R 2 = 0.536 indicates the
appropriate adjustment of the model to the empirical
data. The calculated relationship DW < R 2 indicates the
lack of existence of spurious relationship between the
expected rate of return on Shares of the bank (A) and
Shares of the bank (B). The study of cointegration
occurring between the expected value of rates of
return on Shares of the bank (A) and Shares of the bank
(B) taking into account their residuals, allowed to
obtain the following orders of integration: • Variable (A
t ) representing the expected rate of return on Shares
of the bank (A) is integrated of order zero At~I(0)
• Variable (B t) representing the expected rate of return
on Shares of the bank (B) is integrated of order zero
Bt~I(0)
• Variable et(residuals) is stationary i.e. integrated of
order zero et~I(0)
Pictures 1.
The obtained results allow for the conclusion that there
is no long-term relationship between the expected
rates of return, however, the exclusion of spurious
regression and relatively significant correlation
coefficient allows to imply that there is a short-term
relationship between the expected rates of return on
shares.
Thus, the financial condition acts one of the key
components in the activities of an enterprise, which
requires high-quality analysis in order to develop
various solutions to improve the efficiency of the
enterprise, to increase the investment attractiveness of
the enterprise, and to reduce the likelihood of
bankruptcy of the enterprise.
“Assessment of the financial condition of an enterprise
is part of financial analysis and can be carried out with
varying degrees of detail, depending on the available
information, the objectives of the analysis, etc. It is
characterized by a certain group of indicators reflected
in the balance sheet as of a certain date. The main
target setting and content of financial analysis is to
assess the financial condition and identify the
possibility of ways to improve the efficiency of the
economic entity with the help of rational financial
policy.
Analysis of the financial condition shows that in what
directions this work should be carried out, which makes
it possible to identify the most important aspects and
the weakest points in the financial condition of the
organization. Based on this, the results of the analysis
provide an answer to the question of what are the most
important ways to improve the financial condition of
the organization in a specific given period of its activity.
But the main goal of the analysis is to promptly identify
and eliminate shortcomings in financial activities, as
well as find reserves for improving the financial
condition of the organization and its solvency. [8]
In this regard, the methodological aspects of
conducting an analysis of the financial condition of an
enterprise will be discussed below.
To conduct the analysis and assessing the financial
condition of an enterprise, there are many different
methods and approaches that are described by
researchers.
In general, approaches to conducting analysis and
assessing the financial condition of an enterprise are
partially used in parallel.
This algorithm, in our opinion, it allows us to analyze
the financial condition of the enterprise quite
consistently. However, this algorithm does not present
profitability indicators, and does not assess the
probability of bankruptcy of the enterprise.
Below in the algorithm is presented, according to which
the financial condition analysis will be conducted
within the framework of this study. This algorithm
systematizes the key approaches to conducting the
analysis of the financial condition of the enterprise: 1
Analysis of the structure of assets and capital
enterprises; 2 Analysis of the dynamics of assets and
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
capital enterprises;
3 Analysis of indicators of profitability, business activity
(turnover), financial stability, solvency (liquidity); 4
Assessment of the probability of bankruptcy of the
enterprise.
Pictures 2
First- analysis of the structure of assets and capital. It
consists of determining the share of individual items of
assets or capital in the structure
balance sheet currencies (ratio of item value to the
balance sheet currency) or in the section structure (the
ratio of the item value to the section value), as well as
in determining the share of balance sheet sections in
the balance sheet currency structure (the ratio of the
section value to the balance sheet currency). The share
is usually expressed as a percentage.
Second
–
analysis of the dynamics of assets and capital.
It consists of determining the growth rates or growth
rates of the value of individual items or sections over
several periods (years). The growth rate or growth rate
can be either chain (when the dynamics are
determined in relation to the previous value) or base
(when the dynamics are determined in relation to the
base value). The growth rate is calculated as the ratio
of the current value to the previous (or base),
expressed as a percentage. That is, if the value is less
than 100%, then there has been a decrease, if the value
is more than 100%, then there has been growth. The
growth rate is calculated as the ratio of the difference
between the current value and the previous (base)
value to the previous (base) value, expressed as a
percentage. That is, if the value is negative, then there
has been a decrease, if the value is positive, then there
has been growth. If you subtract 100% from the growth
rate, you get the growth rate.
Third- analysis of profitability indicators, business
activity (turnover), financial stability, solvency
(liquidity). In this case, absolute and relative indicators
are calculated based on the data of the financial
statements of the enterprise.
CONCLUSION
The conducted analyses for the expected rates of
return in most cases are interpreted with reference to
the level of investment risk. Additionally, the data used
in the study come from the banks, which justifies the
financial dimension of the analysis. The authors wish to
draw attention to a different possibility of
interpretation of the obtained information. The entities
subjected to the studies, irrespective of the sector they
operate in, can be treated as a manufacturing or service
company whereas the expected rate of return, in spite
of its ‘stock’ specificity, as a determinant of the
condition of the entity. In such a situation, the analyzed
data indicate the economically stable situation of the
analyzed entities without a clear upward trend. The
relationships between the entities are noticeable,
however, it cannot be considered that e.g. an increased
interest in products of one entity in the long term will
translate into an increased interest in the other entity.
Therefore, it can be concluded that the relationships
between the discussed units result only from a similar
nature of the conducted activity and they cannot be
translated into the way of strategic management in the
long term context. The advantages in favor of the
necessity to conduct the analyses, even in small
companies, include the fact that any information, even
seemingly not bringing apparently positive/negative
forecasts, is significant in the study of the economic
reality. The economic essence of the concept of
financial condition of the enterprise is revealed in the
works of various researchers. Thus, the financial
condition of an enterprise can be understood as the
enterprise’s ability to develop, as part of the economic
potential of the enterprise, as indicators of financial
statements, as the investment attractiveness of the
enterprise. The financial condition is one of the key
components in the activities of the enterprise, which
requires high-quality analysis in order to develop
various solutions to improve the efficiency of the
enterprise, to increase the investment attractiveness of
International Journal of Management and Economics Fundamental
107
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
the enterprise, and reduce the likelihood of bankruptcy
of the enterprise. There are many different methods
and approaches to analyze and assess the financial
condition of an enterprise, including horizontal analysis
(dynamics), vertical (structural) analysis, trend analysis,
analysis of relative indicators (ratio analysis),
comparative (spatial) analysis, factor analysis. The
algorithm by which the financial condition will be
analyzed within the framework of this study: analysis of
the structure of assets and capital of the enterprise,
analysis of the dynamics of assets and capital of the
enterprise, analysis of profitability indicators, business
activity (turnover), financial stability, solvency
(liquidity), assessment of the probability of bankruptcy
of the enterprise.
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