Financial Security of Economic Activity: Analysis, Control, Risk Management

Financial Security of Economic Activity: Analysis, Control, Risk Management

Natalia Kazakova (Plekhanov Russian University of Economics, Russia) and Anna Sivkova (Plekhanov Russian University of Economics, Russia)
Copyright: © 2019 |Pages: 21
DOI: 10.4018/978-1-5225-7760-7.ch006

Abstract

Under the conditions of megarisks, the general level of the world economy's instability rises, the number of unprofitable organizations with overdue debts increases, thus, creating additional threats to the financial security of states. In this regard, presented here, research results have scientific and applied importance for risk management and financial security of economic entities on the basis of the control and analytical concepts which cover: monitoring, diagnostics, prevention of crisis situations, including bankruptcy, corporate fraud and various other financial irregularities in the economy. Accounting for the specifics of economic entities in the course of analysis, diagnostics, and control over their activities is aimed at the creation of effective corporate fraud prevention and bankruptcy management systems. The conceptual principles of information and analytical support, improved methods for analyzing, and evaluating and monitoring financial security contributes to the development of a common methodology for economic analysis and control activities, ensuring their effectiveness and transparency. The comprehensive toolkit for diagnosing financial security allows identifying the areas of increased bankruptcy risks, fraudulent actions or ineffective business management; and unifies the control process, thereby reducing labor intensity and improving the quality of control measures.
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Background

Financial security is an important economic category, which is still not well-established and unambiguous in its definition. Different interpretations of the concept of company’s financial security suggested by post-Soviet scientists and economists-practitioners are shown in Table 1.

Table 1.
Various interpretations of the concept of company’s financial security
The AuthorsThe Author's Interpretation of the Concept of Company’s Financial Security
Blanc I.O.Financial security of a company represents a quantitatively and qualitatively determinant of its financial condition, provides the top-priority protection for the well-balanced financial interests from the identified actual and potential threats of internal and external nature, the parameters of which are determined on the basis of company’s financial philosophy and the created preconditions for financial support of sustainable development in the current and future periods.
Goryacheva K.S.Financial security of an enterprise is its financial state, which is characterized by the balance and quality of financial instruments, technologies and services, and resistance to threats, the ability of the enterprise’s financial system to ensure the realization of its financial interests, missions and tasks, having the sufficient volumes of financial resources as well as ensuring effective and sustainable development of its financial system.
Reverchuk N.Y.Company's financial security is protection against possible financial losses and bankruptcy, achieving the most efficient use of corporate resources.
Gaponenko V.F., Margiev Z.V.The state of the financial-credit sphere which is characterized by balance, resistance to internal and external negative influences, the ability of this sector to ensure effective functioning of the national economic system and economic growth.
Goncharenko L.P., Akulinin F.V.The state of the resources which prevents risks and ensures company’s stable functioning.
Kazakova N.A.,
Zinoviev A.A., Hlevnaya E.A.
The level of maintaining the stability of company's overall condition and its financial stability, sufficiency of cash for conducting operational, financial and investment activity, the balance of cash flows, sufficient independence from counterparties and business partners.
Kazakova N.A.,
Ivanova A.N.
Financial environment of the company, in which it has the ability to function effectively in accordance with the goals set by business owners, to react promptly and adequately to changes in the internal and external environments, and to adapt to them without losing autonomy and reducing own efficiency.

(Source: compiled by the authors)

Key Terms in this Chapter

Security of a Business Entity: Is determined by the level of maintained stability of the state and financial stability of a company, by the adequacy of funds for operations, by financial and investment activities and the balance of cash flows, and finally by the sufficient level of independence from business partners and other counterparties.

Fraud: Means the theft of someone's property or acquisition of the right to someone's property by misconception or abuse by trust.

Current Ratio: Shows company's ability to meet current obligations from liquid assets.

The Principles of Timeliness and Continuity: Assume the existence of a system for constant monitoring of the current and future state of the company which is ensured by constant analysis and forecasting of security threats to the company as well as development of effective protection measures.

Financial Security: Is level of the financial environment of a company, in which it has the ability to function effectively in accordance with the goals set by business owners, to react promptly and adequately to changes in the internal and external environment, and to adapt to them without losing autonomy and reducing efficiency.

Leverage Ratio: Shows the balance of resources provided by creditors and the resources provided by owners, and it is also the most important indicator for analyzing the financial situation of a company.

The Principle of Complexity: Is supposed to ensure the security of personnel, of company’s assets, information bases and confidentiality of information from all types of threats. This is achieved through the personnel selection policy, technical security strengthening and information protection tools.

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