The elasticity of liabilities (EL)

The structural analysis of the capital situation of a company is typically aimed at knowing the capital and financial balance in the use of sources of financing for the invested capital, and therefore the capital strength.

For this reason, the Elasticity of Liabilities and the Elasticity of assets are among the main indicators to understand the solidity of a company and that informs the analyst and the creditors of the company on the past past of the company.

Formula EL 

The Elasticity of Liabilities expresses the ability of the company to cover short-term sources of financing (current liabilities) with its own means (equity). In fact, the percentage value indicates the degree of structural elasticity of the short-term debt capital. Asset Elasticity is also a KPI indicator that helps to understand the degree of solidity of a company. 

🧠CURRENT LIABILITIES ➗ TOTAL LIABILITIES

This Key performance indicator is another pillar for the Credit Risk management and financial management deep analytic process because it correlates the value of current liabilities with the total liabilities plus equity in order to measuring in percentage terms the financial strengths of the company's capital structure. Its value indicates the degree of elasticity of the debt capital structure and therefore how much the company is vulnerable to financial stress. 

When to use EL 

The EL is useful for the analysis of solidity on a Risk Management perspective to create intelligent matrix including other indicators as the followings among the others:

1. Elasticity of assets 
2. Elasticity of Current Assets,
3. Elasticity of Liquidity
4. Rigidity of Assets
5. Rigidity of liabilities

An indicator itself could be unuseful for the purposes of analysis if we want to look at the company with a perspective terms. However, in the absence of sufficient elements to make realistic forecasts, this indicator has always been useful for measuring the financial soundness of the capital structure of a given company at a given moment in time providing important information on the machine learning too.

It is important to specify that this index, whose nature for some is merely equity, is in fact the only one (or one of the few) capable of measuring and analyzing the equity structure of a company through the correlation that is expressed between the value of the current liabilities and the lon-terms liabilities (total liabilities + equity) and is a very useful Credit Risk Management tool for making comparisons with other companies operating in the same sector or market.