This paper presents a model of financial equilibrium analysis. The model is based on relation between net working capital, necessary of working capital and net treasury of the firm. Based on the Pearson correlation coefficient and rank Spearman correlation coefficient, we have determined the intensity of the connection between the stability level, which is an expression of long term equilibrium, and different financial indicators yearly adjusted. Its applicability on Romanian companies traded at Bucharest Stock Exchange is limited by the insufficient amount of information. The list of indicators related to stability should be completed with some more indicators, such as the added value, the expenses profitableness, the financial result and so on.net assets, net working capital, net working capital required, net treasury, financial rates, stability.

Adina Elena DaNULETIU

Dan Constantin DANULETIU

English

Research Papers in Economics

272 
 
ASSESSING FINANCIAL EQUILIBRIUM 
OF THE ROMANIAN COMPANIES 
TRADED AT BUCHAREST STOCK EXCHANGE 
ADINA ELENA DĂNULEŢIU, DAN CONSTANTIN DĂNULEŢIU 
 
Adina Elena DĂNULEŢIU, Lecturer, Phd 
„1 Decembrie 1918” University, Alba Iulia 
Dan Constantin DĂNULEŢIU, Lecturer, Phd 
„1 Decembrie 1918” University, Alba Iulia 
 
Key words: net assets, net working capital, net working capital required, net treasury,   
financial rates, stability. 
 
Abstract: This paper presents a model of financial equilibrium analysis. The model is 
based on relation between net working capital, necessary of working capital and net treasury of 
the firm. Based on the Pearson correlation coefficient and rank Spearman correlation coefficient, 
we have determined the intensity of the connection between the stability level, which is an 
expression of long term equilibrium, and different financial indicators yearly adjusted. Its 
applicability on Romanian companies traded at Bucharest Stock Exchange is limited by the 
insufficient amount of information. The list of indicators related to stability should be completed 
with some more indicators, such as the added value, the expenses profitableness, the financial 
result and so on.  
 
It is well-known that the life of an enterprise represents a succession of 
circumstances which drives to situations more or less difficult. Some of them are 
prevented and avoided even before they occur, others the most serious, are sometimes 
hard to endure and become fatal for the enterprise. To maintain of a good financial 
situation, to continue the activity in conditions of efficiency and efficacy, to reach the 
goals established, the enterprise and her managers must continually adapt the way of 
administration in the aim to compensate the changes that the socio-economical 
environment has on the activity of the enterprise. The neglect of this changes and the 
absence of proper administration measure compromise the maintaining of a good 
financial situation. 
The problem of financial equilibrium is often associated with financial stability. An 
enterprise is financial stable if it has a good financial situation. 
A way to measure stability is based on the opinion that stability is considered the 
situation in which there is a consistency between the amount and the structure of 
allowances in time as it follows [1]:  
Long term resources finance long term utilizations 
Short term resources finance short term utilizations   
and 
Long term resources don’t finance short term utilizations  
Short term resources don’t finance long term utilizations  
The first assertion is known as the rule of minimal financial equilibrium according 
to which the utilities established must be financed from long term resources. This rule is 
considered being “a rule of common sense and caution”, and requires the resources, 
used to finance the assets, to remain available to the enterprise on a period of time that 273 
equals at least the assets. The difference between the capital and the assets is the 
working capital 
The second assertion represents the current equilibrium which must exist between 
the temporary needs and the temporary resources of financing the needs. The difference 
between temporary needs (exclusive the working capital) and the temporary resources 
(exclusive banker credits) represents the needed capital. [3] 
The relation between net working capital and necessary of working capital like 
financial equilibrium indicators determined short term equilibrium with indicator 
named net treasury. 
FR - NFR = TN        (1) 
In accordance with this relation the enterprise can be classified in 6 cases which are 
granted a score by importance of the case, the score between 0 and 1 is granted to an 
unstable enterprise, the score 1 is for the most stable enterprise. 
Table 1 
Enterprises scores depending on the existing relationship  
between the financial equilibrium indicators  
Category Equilibrium indicators  Score (pj) 
1  FR +  NFR -    TN +  1 
2  FR +  NFR +  TN +  0,8 
3  FR +  NFR +  TN -  0,6 
4  FR -  NFR -  TN+  0,4 
5  FR -  NFR -  TN -  0,2 
6  FR -  NFR +  TN -  0 
 
1. The enterprises in the first case are both in long term and in short term 
equilibrium. This enterprises are the most financial stable, and they are characterized by 
the existence of a certain finance self sustenance on short term, the financing of their 
activity is done from permanent capital and the non-financial temporary sources, 
without taking credits, and there is a favorable discrepancy between the stocks and 
debts liquidation and the collectible of the running debts, meaning the acceleration of 
rotation of the circulating assets, to fast the incomes and to relax the payments, actually 
there is no financial need, that will lead to a net positive treasury. 
2. The companies that are on the second case are characterized by the fact that 
during their activities they make investments to increase the capital needed for 
exploitation cycle, the short term debts are not sufficient to cover the running activity, 
so these are in lack of balance on short term. This lack of balance on short term, after 
analyzing the causes, can suggest two aspects [2]: 
- a normal situation in the case that the supplementary need of financing the 
running activity is due to some changes in the fabrication technology or to extension of 
exploitation cycle, and based on these it is also justified the increase of the elements on 
stocks or the increase of assets on deduction. Also, the increase of the volume of 
exploitation activity due some offer adjustments regarding a favorable request on the 
market of specific products can generate on short term a supplementary financing need 
for current assets, without being the expression of a grave financial lack of balance. 
- a negative situation, in the case there is a slowing of the stocks rotation (decrease 
of products request, incorrect establish of stocks level, production re-orientation, 
technological reorganization, etc.), slowing the incomes and in general, negative 274 
administration of the report between debts and duties that means that the company does 
not draw sufficient non-financial resources to cover current needs. 
On long term, permanent capital covers fix assets, those companies have a safe 
reserve that assure them their daily functioning, so they are on long term balance, and 
because the net working capital is bigger than the need of working capital  their treasury 
is positive. 
3. The companies that are in the third case, although they are on long term balance, 
they compare with a negative gap between stocks and debts liquidation and collectible 
exploitation debts, due to the slowing of the incomes and the acceleration of the 
payments, accruing a negative treasury. Although the situation illustrates a certain 
limitation of the company financial independence, this should not be interpreted as a 
state of insolvency. The companies should act to recover the debts, to accelerate the 
stocks rotation speed and possibly to revival the expiration of temporary resources, that 
will lead to decrease the need of net working capital and implicit of the treasury deficit. 
In the case when the normal unrolling of the exploitation cycle allows to justify the 
using of partially financing the current assets based on short term bank credits, the 
company financial bonito does not seem to be regarded on negative treasury. This 
situation is confirmed by reality with the financial statistics, that shows that in the most 
of the economic fields companies have negative treasuries situations but this does not 
influence their financial health. 
By exception, the net negative net working capital can be registered for those 
companies who, through their activity, liquidate and renewal very fast their stocks, such 
as an gross and en detail commercial enterprise, or those companies that use advances 
and guaranties, such as electric companies, gas companies, companies that on the other 
hand, benefit many facilities regarding payments to their suppliers (they have no access 
to the supplier credit).  
4. The companies that are in this case are confronted with the acceleration of stocks 
rotation and exploitation debts that will lead to diminishing or even missing the lack of 
net working capital, these companies are on short term equilibrium. On long term, these 
companies are in a lack of balance, being unable to cover fix assets from permanent 
capitals, so they do not have net working capital, and are forced to take long term loans. 
The net positive treasury comes from urging incomes and relaxing the payments. 
5. For the companies that are on the fifth case, although working capital and 
necessary of working capital are negative like in the case of the companies mentioned 
above, these are in lack of balance on long term and in equilibrium on short term, the 
net negative treasury results from slowing the incomes and accelerating the payments. 
Same time, because the company on this case are characterized by a big need of 
financing resources for permanent activity, the situation can be the expression of a 
backed investment policy. The financial lack of balance shown on long term can have 
an economical justification, founded into the intention of increasing the technical and 
production base. A certain volume of permanent activity that can not be covered from 
permanent sources is partially financed based on temporary sources (situation that 
trespass the general principles of financial balance) and the supplementary not covered 
need of financing of fix assets is founded in treasury, it becomes negative. 
6. The companies that are on the sixth case are both in lack of balance on long term 
because they can not cover fix assets from permanent capitals and on short term 
because standing debts are not sufficient to finance current assets, there is unfavorable 
gap between the stock and debts liquidation and collectible of exploitation debts, by 275 
slowing incomes and accelerating payments that will lead to net negative treasury. 
Due to rearranging the categories, meaning those situations in which an enterprise 
it’s reallocated to another category during the assessed period, a scaling procedure is 
needed in order to determine the enterprise stability degree for the entire period as 
shown above:  
6
5
1
1
∑
= =
j
ij p
i G        (2) 
where: Gi is the stability level of the i enterprise over the whole assessed period 
- pij is the score awarded to the i enterprise in the j year  
This coefficient is adjusted (mathematically normalized) by the following formula: 
G1i* = 
Gi – min(G1: G48)  (
3)  Max (G1:G48) – min(G1: G48) 
The adjusted stability level acquires values between 0 and 1 as it follows:  
                                              Table 2 
The adjusted stability level 
 
 
 
 
 
 
 
 
 
 
 
 
 
Our research is based on the results of 48 enterprises quoted at Bucharest Stock 
Exchange as they were published into a data base created by Reuters – Reuters-
3000XTRA Agency (2007). The financial papers of the mentioned enterprise had been 
drawn up according to International Accounting Standards.  
The companies classification based on the stability rate is shown in the annex of 
the paper.  
Subsequently, based on the Pearson correlation coefficient and rank Spearman 
correlation coefficient, we have determined the intensity of the connection between the 
stability level and different financial indicators yearly adjusted. 
 
Table 3 
The interpretation of the intensity of the results obtained 
Coefficients Spearman and Pearson  Intensity 
0,8 - 1  High 
0,7-0,8 Medium/
High 
0,5 - 0,7  Medium 
0 - 0,5  Reduced 
The stability level   Gi* 
very good stability  0,9-1 
good stability  0,8-0,9 
average stability +  0,7-0,8 
average stability    0,6-0,7 
average stability  -  0,5-0,6 
low stability +  0,4-0,5 
low stability  0,3-0,4 
low stability -  0,2-0,3 
weak stability  0,1-0,2 
very weak stability  0-0,1 276 
Table 4 
The results obtained for the correlations between the stability 
and the financial indicators 
Indicator  Type of 
correlation 
The 
correlation 
coefficient 
used 
The value 
of the 
coefficient
Intensity  Anticipated 
intensiy 
Lc Linear  Pearson  0,640013  Medium  High 
Li Non  Linear  Spearman  0,563070  Medium  High 
Sp Non  Linear  Spearman  0,480515  Reduced  High 
EBIT/DT Non  Linear  Spearman  0,431665 Reduced  High 
Cpr/TP Linear  Pearson  0,932246  High  High 
Cpr/DT Non  Linear  Spearman  0,468519  Reduced  High 
DT/TP Linear  Pearson  0,932247  High  High 
DT/Cp Linear  Pearson  0,979420  High  High 
Cpr/Cprm Linear  Pearson  0,914407 High  High 
CA Non  Linear  Spearman  0,093574  Reduced Reduced 
Net result  Linear  Pearson  0,879455  High  High 
EBIT Linear  Pearson  0,731020  Medium/High High 
EBITDA(EBE) Non Linear  Spearman  0,445777  Reduced  Medium 
CAF Non  Linear  Spearman  0,452128  Reduced  High 
EBIT/CA Linear  Pearson  0,882878  High  High 
EBITDA/CA Linear Pearson  0,905311  High  High 
Gross profit/CA Linear  Pearson  0,739844  Medium/High High 
PN/CA Linear  Pearson  0,921146  High  High 
ROE Linear  Pearson  0,911120  High  Reduced/Medium 
ROA Linear  Pearson  0,894122  High  Reduced/Medium 
365 x AT/CA  Linear  Pearson  0,770764  Medium/High Reduced/Medium 
365 x Ai/CA  Linear  Pearson  0,799249  Medium/High Reduced/Medium 
St x 365/COS  Linear  Pearson  0,908212  High  Reduced/Medium 
St x 365/CA  Linear  Pearson  0,901054  High  High 
Cr com x 
365/CA  Linear Pearson  0,789118  Medium/High Reduced/Medium 
Dcom x 365/CA Non Linear  Spearman  0,158272  Reduced  High 
Dcom x 
365/COS  Non Linear  Spearman  0,238222  Reduced  High 
R tangible assts Linear  Pearson  0,736049  Medium/High Reduced/Medium 
Raimob Linear  Pearson  0,764416  Medium/High Reduced/Medium 
R stocks  Linear  Pearson  0,352914  Reduced  Reduced/Medium 
R debts  Non Linear  Spearman  0,257707  Reduced  Reduced/Medium 
R cscb  Linear  Pearson  0,558834  Medium  Medium 
R current assets Linear  Pearson  0,564809  Medium  Medium 
Cash-flow Linear  Pearson  0,937068 High  High 
 
From the data of the table we notice the conclusions: 
a) Indicators to which the obtained intensity was under the expectations  277 
- the liquidity and solvability installment;  
- the financial autonomy installment;  
-the gross surplus from exploitations, the auto financing capacity; 
- the rotation speed of the commercial debts; 
b) the indicators to which obtained intensity was over the expectations: 
- financial and economic profitableness;  
- the rotation speed of the total assets and the immobilized assets and claims  
- the installment of the intangible assets and the installment of the immobilized 
assets; 
- the rotation speed of the stocks. 
Its applicability on Romanian companies traded at Bucharest Stock Exchange is 
limited by the insufficient amount of information. The list of indicators related to 
stability should be completed with some more indicators, such as the added value, the 
expenses profitableness, the financial result and so on. But we consider that this 
methodology can be successfully applied for different activity fields. 
 
 
REFERENCES 
 
1. Bătrâncea Ioan (2000) - Analiză financiară, Publishing House Dacia, Cluj-
Napoca; 
2. Burja Vasile, Todea Nicolae, Burja Camelia (2003) - Analiza financiară  şi 
evaluarea societăţilor comerciale, Publishing House Risoprint, Cluj-Napoca; 
3. Niculescu, Maria (2005) - Diagnostic financiar , Economica Publishing House, 
Bucureşti. 
 
 

Assessing Financial Equilibrium of the Romanian Companies Traded at Bucharest Stock Exchange

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