Financial analysis at an enterprise is needed for an objective assessment of the economic and financial condition in periods of past, present and projected future activity. To identify weak production areas, areas of problems, and identify strong factors that management can rely on, the main financial indicators are calculated.
An objective assessment of a company’s position in terms of economics and finances is based on financial ratios, which are a manifestation of the relationship between individual accounting data. The goal of financial analysis is to achieve the solution of a selected set of analytical problems, that is, a specific analysis of all primary sources of accounting, management and economic reporting.
Main goals of economic and financial analysis
If the analysis of the main financial indicators enterprise is considered as identifying the true state of affairs at the enterprise, then the results receive answers to the questions:
- the company’s ability to invest funds in investing in new projects;
- the current course of affairs in relation to material and other assets and liabilities;
- the state of loans and the company’s ability to repay them;
- the existence of reserves to prevent bankruptcy;
- identifying prospects for further financial activities;
- assessment of the enterprise in terms of value for sale or re-equipment;
- tracking the dynamic growth or decline of economic or financial activities;
- identifying reasons that negatively affect business results and finding ways out of the situation;
- consideration and comparison of income and expenses, identification of net and total profit from sales;
- studying the dynamics of income for basic goods and in general from all sales;
- determining the portion of income used to reimburse costs, taxes and interest;
- studying the reasons for the deviation of the amount of balance sheet profit from the amount of sales income;
- study of profitability and reserves to increase it;
- determining the degree of compliance of the enterprise's own funds, assets, liabilities and the amount of borrowed capital.
Stakeholders
An analysis of the company's main financial indicators is carried out with the participation of various economic representatives of departments interested in obtaining the most reliable information about the affairs of the enterprise:
- internal subjects include shareholders, managers, founders, audit or liquidation commissions;
- external ones are represented by creditors, audit firms, investors and government officials.
Financial analysis capabilities
The initiators of the analysis of the enterprise’s work are not only its representatives, but also employees of other organizations interested in determining the actual creditworthiness and the possibility of investing in the development of new projects. For example, bank auditors are interested in the liquidity of a firm's assets or its ability to this moment to pay the bills. Legal and individuals who wish to invest in a development fund of this enterprise, try to understand the degree of profitability and risks of the deposit. An assessment of key financial indicators using a special technique predicts the bankruptcy of an institution or indicates its stable development.
Internal and external financial analysis
Financial analysis is part of the general economic analysis of the enterprise and, accordingly, part of a complete economic audit. Full analysis is divided into internal management and external financial audit. This division is due to two practically established systems in accounting - management and financial accounting. The division is recognized as conditional, since in practice external and internal analysis complement each other with information and are logically interconnected. There are two main differences between them:
- by accessibility and breadth of the information field used;
- degree of application of analytical methods and procedures.
Internal analysis of key financial indicators is carried out to obtain summarized information within the enterprise and determine results last period reporting, identifying free resources for reconstruction or re-equipment, etc. To obtain results, all available indicators are used, which are also applicable when researched by external analysts.
External financial analysis is performed by independent auditors, outside analysts who do not have access to the internal results and indicators of the company. External audit methods assume some limitation of the information field. Regardless of the type of audit, its methods and methods are always the same. What is common in external and internal analysis is derivation, generalization and detailed study financial ratios. These basic financial indicators of the enterprise’s activities provide answers to all questions regarding the work and prosperity of the institution.
Four main indicators of financial health
The main requirement for the break-even operation of an enterprise in conditions market relations is economic and other activities that ensure profitability and profitability. Economic activities are aimed at reimbursing expenses with income received, generating profit to satisfy the economic and social needs of team members and the material interests of the owner. There are many indicators to characterize activities, in particular these include gross income, turnover, profitability, profit, costs, taxes and other characteristics. For all types of enterprises, the main financial indicators of the organization’s activities are highlighted:
- financial stability;
- liquidity;
- profitability;
- business activity.
Financial stability indicator
This indicator characterizes the degree of correlation between the organization’s own funds and borrowed capital, in particular, how much borrowed funds account for 1 ruble of money invested in tangible assets. If such an indicator when calculated is obtained with a value of more than 0.7, then the financial position of the company is unstable, the activity of the enterprise to some extent depends on attracting external borrowed funds.
Liquidity characteristics
This parameter indicates the main financial indicators of the company and characterizes the sufficiency of the organization’s current assets to pay off its own short-term debts. It is calculated as the ratio of the value of current current assets to the value of current passive liabilities. The liquidity indicator indicates the possibility of converting the company's assets and values into cash capital and shows the degree of mobility of such transformation. The liquidity of an enterprise is determined from two perspectives:
- the length of time required to convert current assets into cash;
- the ability to sell assets at a specified price.
To identify the true indicator of liquidity in an enterprise, the dynamics of the indicator are taken into account, which allows not only to determine the financial strength of the company or its insolvency, but also to identify the critical state of the organization’s finances. Sometimes the liquidity ratio is low due to the increased demand for the industry's products. Such an organization is quite liquid and has high degree solvency, since its capital consists of cash and short-term loans. The dynamics of the main financial indicators demonstrate that the situation looks worse if the organization has working capital only in the form large quantity warehoused products in the form of current assets. To convert them into capital, a certain amount of time is required for implementation and the presence of a customer base.
The main financial indicators of the enterprise, which include liquidity, show the state of solvency. The company's current assets must be sufficient to repay current short-term loans. In the best situation, these values are approximately at the same level. If an enterprise has much more working capital in value than short-term loans, then this indicates an ineffective investment of money by the enterprise in current assets. If the amount of working capital is lower than the cost of short-term loans, this indicates the imminent bankruptcy of the company.
As a special case, there is an indicator of quick current liquidity. It is expressed in the ability to pay off short-term liabilities at the expense of the liquid part of assets, which is calculated as the difference between the entire current part and short-term liabilities. International standards determine the optimal level of the coefficient within 0.7-0.8. The presence of a sufficient number of liquid assets or net working capital within an enterprise attracts creditors and investors to invest money in the development of the enterprise.
Profitability indicator
The main financial indicators of an organization's effectiveness include the value of profitability, which determines the efficiency of using the funds of the company's owners and generally shows how profitable the operation of the enterprise is. The profitability value is the main criterion for determining the level of stock exchange quotes. To calculate the indicator, the amount of net profit is divided by the amount of average profit from sales net assets companies for the selected period. The indicator reveals how much net profit each unit of goods sold brought.
The generated income ratio is used to compare the income of the desired enterprise in comparison with the same indicator of another company operating under a different taxation system. The calculation of the main financial indicators of this group provides for the ratio of profit received before taxes and due interest to the assets of the enterprise. As a result, information appears about how much profit each monetary unit invested in the company’s assets brought in for work.
Business activity indicator
Characterizes how much finance is obtained from the sale of each monetary unit certain type assets and shows the turnover rate of the organization's financial and material resources. For the calculation, the ratio of net profit for the selected period to average cost costs in material terms, money and short-term securities.
There is no standard limit for this indicator, but the management forces of the company strive to accelerate turnover. Constant use in economic activity loans from outside indicate insufficient financial receipts as a result of sales, which do not cover production costs. If the value of current assets on the organization's balance sheet is overstated, this results in the payment of additional taxes and interest on bank loans, which leads to loss of profit. A low number of active funds leads to delays in fulfilling production plans and the loss of profitable commercial projects.
For an objective, visual examination of economic activity indicators, special tables are compiled that show the main financial indicators. The table contains the main operating characteristics for all parameters financial analysis:
- inventory turnover ratio;
- indicator of the company's receivables turnover over time;
- value of capital productivity;
- resource return indicator.
Inventory turnover ratio
Shows the ratio of revenue from the sale of goods to the amount in monetary terms of inventories at the enterprise. The value characterizes the speed of sale of material and commodity resources classified as a warehouse. An increase in the ratio indicates a strengthening of the organization’s financial position. Positive dynamics indicator is especially important in conditions of large accounts payable.
Accounts receivable turnover ratio
This ratio is not considered as the main financial indicators, but is an important characteristic. It shows the average time period in which the company expects payment to be received after the sale of goods. The calculation is based on the ratio of accounts receivable to average daily sales revenue. The average is obtained by dividing the total revenue for the year by 360 days.
The resulting value characterizes the contractual terms of work with customers. If the indicator is high, it means that the partner provides preferential working conditions, but this causes caution among subsequent investors and creditors. Small value indicator leads, in market conditions, to a revision of the contract with this partner. An option for obtaining the indicator is a relative calculation, which is taken as the ratio of sales revenue to the company's receivables. An increase in the ratio indicates a low debtor debt and high demand for products.
Capital productivity value
The main financial indicators of the enterprise are most fully complemented by the capital productivity indicator, which characterizes the rate of turnover of finance spent on the acquisition of fixed assets. The calculation takes into account the ratio of revenue from goods sold to the annual average cost of fixed assets. An increase in the indicator indicates a low cost of expenses in terms of fixed assets (machines, equipment, buildings) and a high volume of goods sold. Great importance capital productivity indicates insignificant production costs, and low capital productivity indicates inefficient use of assets.
Resource efficiency ratio
For the most complete understanding of how the main financial indicators of an organization’s activities develop, there is an equally important resource return ratio. It shows the degree of efficiency of the enterprise’s use of all assets on the balance sheet, regardless of the method of acquisition and receipt, namely, how much revenue is received for each monetary unit of fixed and current assets. The indicator depends on the procedure for calculating depreciation adopted at the enterprise and reveals the degree of illiquid assets that are disposed of to increase the ratio.
Main financial indicators of LLC
Income source management ratios show the financial structure and characterize the protection of the interests of investors who have made long-term injections of assets into the development of the organization. They reflect the company's ability to repay long-term loans and credits:
- share of loans in the total amount of financial sources;
- ownership ratio;
- capitalization ratio;
- coverage ratio.
The main financial indicators are characterized by the volume of borrowed capital in the total mass of financial sources. The leverage ratio measures the specific amounts of assets purchased with borrowed money, which includes the firm's long-term and short-term financial liabilities.
The ownership ratio supplements the main financial indicators of the enterprise by characterizing the share of equity capital spent on the acquisition of assets and fixed assets. A guarantee of obtaining loans and investing investor money in a project for the development and re-equipment of an enterprise is the indicator of the share of own funds spent on assets in the amount of 60%. This level is an indicator of the stability of the organization and protects it from losses during a downturn in business activity.
The capitalization ratio determines the proportional relationship between borrowed funds from various sources. To determine the proportion between equity and borrowed funds, the inverse leverage ratio is used.
The interest coverage indicator or coverage indicator characterizes the protection of all types of creditors from non-payment of interest rates. This ratio is calculated as the ratio of the amount of profit before interest to the amount of money intended to pay off interest. The indicator shows how much money the company earned to pay borrowed interest during the selected period.
Market activity indicator
The main financial indicators of the organization in terms of market activity indicate the position of the enterprise in the securities market and allow managers to judge the attitude of creditors towards general activities company for the past period and in the future. The indicator is considered as the ratio of the initial book value of the share, the income received on it and the current market price for given time. If all other financial indicators are within the acceptable range, then the market activity indicator will also be normal if the market value of the stock is high.
In conclusion, it should be noted that financial analysis economic structure organization is important for all stakeholders, shareholders, short-term and long-term creditors, founders and management.
Financial indicators(financial indicators) – cost indicators used to characterize economic units (state, region, enterprise, etc.).
Financial indicators are divided into absolute and relative, and are also classified (with some degree of convention) into macroeconomic and microeconomic. In turn, within each group, separate subgroups are distinguished.
Macroeconomic financial indicators:
- general economic ( , );
- budgetary (revenues, expenses, budget deficit, public debt);
- indicators of financial markets (interest rates, monetary aggregates, exchange rates, central banks);
- indicators of the balance of payments (balance of payments for current transactions, balance of capital flows, gold and foreign exchange reserves).
Microeconomic financial indicators:
- volume of sales;
- inventories;
- profit;
- earnings per share;
- price/earnings;
- book value of the share;
- stock price;
- current stock return;
- return on equity;
- return on assets and borrowed funds;
- coverage ratio.
In developed countries, in particular in the USA, the following macroeconomic financial indicators are most common:
- CCI – Consumer Confidence Index - CB consumer confidence;
- CPI – Consumer Price Index – Consumer Price Index (CPI);
- Unemployment Rate – Unemployment rate (USA);
- FOMC Meeting (Interest Rate Decision) – Federal Committee meeting open market FOMC (Interest Rate Announcement);
- GDP – Gross Domestic Product – Gross Domestic Product (GDP);
- ISM (Institute for Supply Management) Manufacturing Index – Index of Manufacturing Activity;
- MCSI (Michigan Consumer Confidence Index) - University of Michigan Consumer Sentiment Index;
- NFP (Changes in non-farm payrolls) – Change in the number of employees in the non-farm sector;
- Manufacturing PMI (Purchasing Managers Index) – PMI manufacturing activity index;
- Retail Sales Data – Retail sales data;
- Tankan Large Manufacturers Index – Tankan Manufacturing Index;
- TIC Net Long-Term Transactions – Volume of purchases of long-term TIC securities;
- Trade Balance – Trade balance.
CCI – Consumer Confidence Index - Consumer Confidence CB
Published on the last Tuesday of each month at 14:00 GMT, covering data for the current month.
The Consumer Confidence Index measures the level of consumer confidence in economic activity. To calculate the index, survey data from about 5 thousand households is taken. When the state guarantees us more jobs, increased wages and lower interest rates, our confidence and purchasing power increase. The respondents answer questions about their income, assessments of the state of the market and the possibility of their growth financial well-being. The Federal Reserve takes this figure into account when setting interest rates. This index is considered an important market driver because... private consumption accounts for two-thirds of the American economy. An increase in the index value is a positive factor for development national economy and leads to the growth of the national currency.
CPI – Consumer Price Index – Consumer Price Index (CPI)
is a benchmark index designed to measure the average level of prices of goods and services (the consumer basket) over a specified period in the economy, usually monthly (not including taxes). This is a key way to measure changes in purchasing trends and. An increase in the CPI indicates inflation.
Core-CPI - US CPI (consumer price index excluding food and energy, expenses that depend on seasonal fluctuations) provides a more accurate measurement total price. Published approximately on the 20th of each month at 13:30 GMT. This index is widely used in economics and is considered an important market driver.
Unemployment Rate – Unemployment rate (USA)
Issued by the Bureau of Labor Statistics on the first Friday of each month at 13:30 GMT, covering data from the previous month. The unemployment rate measures the percentage of the total labor force that is unemployed but actively job seeker and ready to work in the USA. The report is the first part of the overall US Employment Situation Report. The second part of the report talks about the length of the working week and average hourly wages.
FOMC Meeting (Interest Rate Decision) – Meeting of the Federal Open Market Committee FOMC (Interest Rate Announcement)
Interest Rate Announcement. Meetings of representatives of the US Federal Bank are held 8 times a year. The interest rate decision is published during each meeting (around 19:15 GMT).
(US Federal Reserve) is responsible for managing US monetary policy. This system controls banks, provides services to government agencies and citizens, and maintains financial stability in the country.
In the United States, there are 12 authorized regions (each of which includes several states) represented on the Federal Reserve Committee.
The interest rate of currencies is practically the price of money. The higher interest rate by currency, the more people will tend to hold this currency in order to buy it and thus strengthen the exchange rate. This is a very important indicator that affects the inflation rate and is a serious driver of the market.
GDP – Gross Domestic Product – Gross Domestic Product (GDP)
is a gross indicator of market activity. It represents the monetary value of all goods and services produced in an economy during a given period. Includes consumption, government purchases, investment and trade balance.
GDP is perhaps the most important indicator of a country's economic health. It is usually measured on an annual basis, but quarterly statistics are also available. The quarterly dynamics of percentage of GDP shows the growth rate of the economy as a whole.
The US Department of Commerce publishes GDP in 3 modes: initial, preliminary, final. The Initial Report release appears on the last day of each quarter. A “Preliminary Report” follows within a month, followed by a “Final Report” issued a month later. The latest GDP data has relatively high implications for markets. GDP shows the rate at which a country's economy is growing (or shrinking).
The US GDP report is released on the last day of the quarter at 13:30 GMT, covering data from the previous quarter.
ISM Manufacturing Index – Index of manufacturing activity
The report is released on the first working day of the month at 15:00 GMT and covers data from the previous month.
The Institute for Supply Management (ISM) Manufacturing Index is the result of a monthly survey of more than 400 companies in 20 industries in 50 states. This data is considered a very important and reliable economic indicator. If the index reads below 50, due to lower activity, it indicates an economic slowdown, especially if the trend continues for several months. A reading significantly above 50 likely indicates a period of economic growth.
MCSI (Michigan Consumer Confidence Index) - University of Michigan Consumer Sentiment Index.
Issued by the University of Michigan on the first of each month, covering data from the previous month.
The University of Michigan Consumer Sentiment Index measures the level of consumer confidence in economic activity. It is a leading indicator that predicts consumer spending that is part of economic activity.
The data comes from a survey of about 500 consumers. Higher readings indicate consumer optimism.
NFP (Changes in non-farm payrolls) – Change in the number of employees in the non-farm sector
Published by the Department of Labor on the first Friday of each month at 15:30 GMT, covering data from the previous month.
Data reflects changes in the total number of paid jobs in the United States in every business area except:
- civil servants;
- private farm workers;
- employees non-profit organizations providing assistance to individuals;
- farm workers.
The non-farm sector accounts for approximately 80% of total employment. It produces the entire US gross domestic product. It helps policymakers and economists determine the current state of the economy and predict future levels of economic activity. This is a serious market driver, mainly due to large forecast deviations.
Manufacturing PMI (Purchasing Managers Index) – PMI Manufacturing Activity Index
Published on the first working day of each month at 15:00 GMT, covering data from the previous month.
This index is used to measure changes in new factory orders, industrial output, employment, and supplier inventories and speed. Each indicator has different meaning and takes into account seasonal factors. The Association of Purchasing Managers surveys more than 300 purchasing managers nationwide who represent 20 different industries.
A PMI above 50 indicates manufacturing is expanding, while a reading below 50 means industry is contracting. The PMI report is an extremely important indicator for financial markets as it is the best indicator of factory production. This index is popular for identifying inflationary pressures as well as the health of factory production.
The PMI is not as important as the CPI (Consumer Price Index) in identifying inflation, but since it is published at the very beginning of the month, it is quite relevant. If the PMI indicates unexpected changes, it is usually accompanied by a quick reaction in the market. One of the key highlights of the report is the growth in new orders, which predicts manufacturing activity in the coming months.
Retail Sales Data – Retail sales data
Issued by the Census Bureau around the 12th of each month from 13:30 GMT, covering data from the previous month.
Retail sales are key driving force US economy. This metric tracks the products that companies sell at retail and measures total consumer spending in that area (not including service costs). Income from retail make up the majority (two-thirds) of the American economy. The Census Bureau surveys hundreds of firms of varying sizes that engage in some type of retail trade. Data published monthly shows percentage change compared to the previous month's figures. A negative number means sales have decreased. This indicator is a very important driver of the market as it is used as an indicator of consumer activity, since an increase in the sales figure will mean an increase in economic activity.
Tankan Large Manufacturers Index – Tankan Manufacturing Index
Published by the Central Bank of Japan four times a year - in April, July, October and mid-December at 23:50 GMT.
The Tankan Manufacturing Index measures overall business conditions among large manufacturers. The information is based on a survey of 1,200 large manufacturers in Japan who were asked about their business conditions. This is a key indicator of the Japanese economy, which to a large extent relies on manufacturing industry. Above 0 indicates improving conditions, while below 0 indicates worsening conditions. This index is considered an important driver of the JPY currency pair market.
TIC Net Long-Term Transactions – Volume of purchases of long-term TIC securities
Published by the US Treasury on the 12th of each month at 14:00 GMT, covering data for the previous month.
TIC Purchases of Long-Term Securities measures the monthly difference in the cost of purchases of U.S. long-term foreign securities and foreign purchases of U.S. long-term securities. TIC flows are a key resource for the US government to offset trade deficits, which can provide a good reflection of demand for the US dollar.
Trade Balance – Trade balance
Published by the Department of Commerce in the second week of each month.
The index measures the difference in the amount of exported and imported goods (exports minus imports). It is the largest component of the country's balance of payments. Affects the movement of the country's currency.
3. ANALYSIS OF THE MAIN INDICATORS OF THE FINANCIAL CONDITION OF THE ENTERPRISE.
3.1. ANALYSIS OF SOLVENT INDICATORS.
In the context of mass insolvency of enterprises and the practical application of bankruptcy procedures to many of them, an objective and accurate assessment of their financial condition becomes of paramount importance. One of the main criteria for assessing the financial condition is the solvency indicators of the enterprise.
Many economists consider solvency to be the main condition for the financial stability of an enterprise. Solvency is generally considered to be the ability of a business entity to timely and fully repay obligations on priority payments. The main condition for solvency is often called:
amount of cash short-term accounts payable
funds of the economic body > and short-term loan obligations.
Solvency is usually measured by three main ratios: liquidity ratio, intermediate coverage ratio and total coverage ratio (or current ratios).
Let's calculate and analyze solvency indicators for our company (Table 3).
Table 3.
Calculation of solvency indicators.
(for 1995-1996)
| Indicators | Normative value | 01.01..95 | 01.01..96 | 01.01..97 | Change for 1996 (+,-) |
| A | 1 | 2 | 3 | 4 | 5 |
| 1.Short-term debt (line 610+620) | --- | 547 009 | 1 083 090 | 1 303 404 | + 220 314 |
| 2. Current assets (pp. 290-217), | --- | 589 468 | |||
| 2.1. Inventories (pages 210-217+220) | --- | 536 461 | 995 530 | 1 130 283 | + 134 753 |
| 2.2. Accounts receivable with expected payments within 12 months. | --- | 240 | 20 986 | 54 574 | +33 588 |
| 2.3. Cash and short-term financial attachments. | --- | 52 767 | 51 331 | 45 468 | - 5 863 |
| 3. Absolute liquidity ratio (line 2.3. / page 1) | >0,1 | 0,096 | 0,047 | 0,035 | - 0,012 |
| 4. Intermediate coverage ratio. (p.2.3.+p.2.2.):p.1) | >0,6 | 0,097 | 0,067 | 0,077 | +0,01 |
| 5. General coverage ratio, or current ratio (page 2 / page 1) | >=2 | 1,078 | 0,986 | 0,944 | - 0,042 |
Based on the data in Table 3, we can conclude that the solvency of the enterprise Goods for Children is unsatisfactory:
n absolute liquidity ratio is most important for suppliers of material resources and for the bank lending to the enterprise. It characterizes solvency as of the balance sheet date and shows what part of the short-term debt the company can repay in the near future. For none of the reporting dates under consideration, the value of the indicator does not satisfy standard value(only on 01/01/95 the size of the coefficient is very close to it), moreover, the value of the coefficient is constantly decreasing and on 01/01/97. is 0.035. That is, the company is able to repay only 3.5% of the amount of short-term liabilities at the beginning of 1997.
n the intermediate coverage ratio reflects the projected payment capabilities of the enterprise, subject to timely settlements with debtors. The value of this indicator is also far from the normative one. Even despite the slight increase in the value of the coefficient at the beginning of 1997, it is still too far from optimal and is associated with an increase in accounts receivable for the specified period, and not with a decrease in the size of accounts payable. Timely repayment of debts by all debtors of the enterprise “Goods for Children” is not capable of restoring the solvency of the economic entity.
n coverage ratio (current liquidity) shows the payment capabilities of the enterprise, assessed subject to not only timely settlements with debtors and favorable sales finished products, but also sales, if necessary, of other elements of material current assets. That is, it is determined from the consideration that there should be enough liquid funds to fulfill short-term obligations, based on this, the value of the indicator should not fall below 1, and the optimal ratio is considered to be 2. Only as of 01/01/95. for the enterprise under study, the coefficient value was at a sufficient level. During 1995 and 1996. its value was constantly decreasing and as of 01/01/97. was 0.944. Thus, the total value of the enterprise's current assets is not able to cover its short-term liabilities.
The solvency of an enterprise can be characterized by assessing the structure of its balance sheet from the point of view of satisfaction and solvency.
Table 4.
Calculation of indicators for assessing the structure of the balance sheet from the point of view of satisfaction and solvency (for 1995-1996).
| Name | Deviation from the norm |
||||||
| indicator | meaning | ||||||
| A | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| Coating kit(current liquidity), K tl | 1,078 | 0,986 | 0,944 | >=2 | -0,922 | -1,014 | -1,056 |
| Settlement of own funds (Pas.4-Act.1/Act.2), C o | 0,026 | -0,019 | -0,060 | >0,1 | -0,074 | -0,119 | -0,16 |
| K-restoration of solvency K to tl +6/12 (K to tl -K n tl) K tl normal value (>=2) | 0,47 | 0,4615 | - | - | - | - | |
The essence of the current ratio was discussed earlier.
The second coefficient characterizes the availability of the enterprise’s own working capital, which is necessary for its financial stability.
If none of the indicated indicators meets the standard value (and the data in Table 4 shows that this is the case), the balance sheet structure is considered unsatisfactory, operational control over the financial position of the enterprise is necessary and the implementation of measures to restore solvency is calculated - the third indicator is calculated (coefficient restoration of solvency) within 6 months.
Its economic meaning: if the value of the coefficient is greater than 1, then there is a real opportunity for the enterprise to restore the balance sheet structure and not lose solvency. If the coefficient is less than 1 (and in this situation this is exactly the case), then during the specified period - 6 months - the enterprise does not have the opportunity to restore its solvency, and the negative dynamics of indicators during both periods under consideration reduces the chances of restoring solvency in a longer period .
Among the factors that ensure solvency, balance sheet liquidity is often mentioned. It is defined as the degree to which an enterprise's liabilities are covered by its assets, the period of transformation of which into cash corresponds to the period of repayment of obligations.
To determine the liquidity of the balance sheet, the results of liquid groups of assets and liabilities are compared. This grouping of funds and their sources for the MP “Products for Children” is shown in Table 5.
Table 5.
Groups of liquid assets and liabilities to determine the liquidity of the enterprise’s balance sheet (for 1995-1996)
| ASSETS | 01.01.95 | 01.01.96 | 01.01.97 | LIABILITIES | 01.01.95 | 01.01.96 | 01.01.97 |
| A | 1 | 2 | 3 | IN | 4 | 5 | 6 |
| A1 Most liquid assets, total | P1 Most urgent obligations, total | ||||||
| including Cash Short-term financial investments | including Accounts payable | 547 009 | 1083090 | 1303404 | |||
| A2 Quickly realizable assets, total | P2 Short-term liabilities, total | ||||||
| including Accounts receivable Etc. current assets | including Borrowed funds Etc. Short-term liabilities (line 670+630) | ||||||
| A3 Slow-selling assets, total | P3 Long-term liabilities, total | ||||||
| including Reserves (st.210-217+220) Long-term financial investments | including Borrowed funds | 0 | 0 | 0 | |||
| A4 Hard to sell assets, total | P4 Constant liabilities, total | ||||||
| including Fixed assets Intangible assets Construction in progress Etc. fixed assets Future expenses. | including Own funds (Pas. 4) Consumption funds revenue of the future periods Reserves for upcoming expenses and payments | ||||||
| TOTAL | 602 269 | 1143304 | 1352194 | TOTAL | 602 269 | 1143304 | 1352194 |
The balance is considered absolutely liquid if the following relationships exist: A1>=P1; A2>=P2; A3>=P3; A4<=П4.
In fact, these ratios developed as follows:
| 01/01/95 | 01/01/96 and 97 |
| A1<П1 | A1<П1 |
| A2>P2 | A2>P2 |
| A3>P3 | A3>P3 |
| A4<П4 | A4>P4 |
Thus, the data indicate that on none of the reporting dates under consideration the balance of the MP “Goods for Children” is absolutely liquid, and during 1995 and 1996 the situation worsened.
The ratio A1>=P1 allows us to identify current liquidity (the period of receipts and payments is up to 3 months): the ratio is not satisfied on any of the dates. Thus, in the near future the enterprise’s balance sheet is illiquid and the situation does not change in better side.
A2>=P2 shows a tendency for current liquidity to increase or decrease in the near future (periods from 3 to 6 months): the inequality holds for all reporting dates. But this is due not so much to the good performance of the enterprise as to the lack of borrowed funds on the balance sheet. Moreover, changes in the liquidity situation in a given period are strongly influenced by the quality of receivables.
The same can be said regarding the third inequality: A3>=P3 reflects the ratio of payments and receipts in the distant future (over 6 months). The ratio is satisfied, but this fact is again associated with the company’s lack of long-term borrowed capital. At the same time, maintaining solvency during this period (over 6 months) depends on the quality of the stocks of MP “Goods for Children” and other financial investments. As noted earlier, most of the reserves are formed from finished products, the balances of which are constantly replenished. This may also be evidence of overstocking of the enterprise’s warehouses, the lack of competitiveness of goods, or it may be associated with inflation (it is not possible to make a more detailed assessment due to the lack of additional information). If the product is truly uncompetitive and there are difficulties with its sale, then such a circumstance does not allow a positive assessment of the liquidity of the enterprise for the future.
Allowing automation of financial and economic activities and planning, which at this stage goes beyond simple accounting and registration tasks. 3. Analysis of the financial condition of the enterprise 3.1 The essence of financial analysis and its role in modern conditions management The effectiveness of enterprise management is largely determined by the level of its organization and...
1 0.98 ≥0.1 Characterizing the state of fixed assets Permanent asset index 0.056 0.063 Coefficient of real value of property 0.056 0.063 >0.5 5. Assessing production efficiency To assess the financial condition of an enterprise, it is necessary to conduct an analysis that allows us to identify how effectively the enterprise uses its facilities. To the indicators...
0, + Ft< 0, + Фо < 0, тогда S { 0; 0; 0} Помимо этого на основании данных “Бухгалтерского баланса” рассчитываются коэффициенты, характеризующие финансовую устойчивость предприятия: Коэффициент соотношения собственных и привлеченных средств (U1) дает наиболее общую оценку финансовой устойчивости предприятия. Он имеет простую интерпретацию: его значение, равное 0,178, означает, что на...
Enterprises decreasing business activity. But in the 4th quarter of 1998. there is a surge in these indicators. Profitability is one of the main indicators characterizing the financial condition of an enterprise (Table 8). Profitability indicators most objectively reflect the level economic development every enterprise. They are synthetic and at the same time the most...
Monitoring of financial condition is carried out exclusively in relation to municipal utility companies and does not affect enterprises that are not municipally owned. Indicators of the financial condition of regulated enterprises and the methodology for their use are the same for all municipal enterprises. The regulatory body (interdepartmental commission) can establish for each regulated enterprise its own ranges of permissible changes in indicators, taking into account the specifics of the activities of each enterprise. Financial stability indicators
The share of borrowed funds in the balance sheet structure characterizes the degree of dependence of the enterprise on external sources of financing and is calculated using the formula
(borrowed funds + accounts payable) /
/ (equity + borrowed funds +
+ accounts payable).
The amount of equity is determined based on balance sheet data
own funds = capital and reserves - targeted financing - debt of the founders - losses.
The amount of borrowed and attracted funds is determined based on balance sheet data
borrowed funds - long-term liabilities +
+ short-term borrowed funds.
The recommended value of the indicator is no more than 0.5.
The ratio of coverage of non-current assets with long-term sources of financing is calculated using the formula
(equity + long-term liabilities) /
/ fixed assets.
The recommended value of the indicator is greater than one. Indicator values less than one indicate that the enterprise finances long-term assets from short-term unreliable sources - accounts payable, i.e. about the instability of the financial condition of the enterprise and its short-sighted financial policy.
The working capital indicator is calculated using the formula
working capital - accounts payable - losses.
Working capital is the part of the enterprise's current assets financed from stable sources. A positive value of the indicator is a necessary condition for the financial stability of the enterprise.
Analysis of financial stability indicators serves as the basis for making operational decisions. The following standard operational solutions can be proposed: if the unsatisfactory financial stability of an enterprise is accompanied by losses from core activities caused by factors external to the enterprise, the regulatory body may begin a procedure for changing the tariff;
if the deterioration in the financial stability of the enterprise is associated with the presence of overdue debt of the municipality (i.e. the value of the indicator, calculated taking into account the reduction of the enterprise's accounts payable by the amount of the overdue debt of the municipality, is within acceptable values), a decision may be made to carry out offsets or to find internal budget reserves ; in case of unsatisfactory indicators of the financial stability of the enterprise in the absence or insignificant amount of overdue debt of the municipality and external factors unfavorable for the enterprise, the remuneration of the manager may be changed on the basis of an agreement with the head of the municipal enterprise. Liquidity indicators
Total Coverage Ratio =
= current assets
The indicator characterizes the company's ability to repay accounts payable using working capital. The recommended value of the indicator is 1.5...2.5. A value of the indicator that is too low is a sign of possible problems with repaying accounts payable; a value that is too high may indicate insufficient effective management assembly capital. Recommended coefficient values may vary depending on seasonality factors.
The current liquidity ratio characterizes the ability of an enterprise to repay its accounts payable using the more liquid part of working capital - cash, short-term financial investments and accounts receivable (except overdue):
(working capital - inventories - VAT on purchased goods and materials - overdue accounts receivable) /
/ accounts payable.
The normal value of this indicator is about one. A too low value of the indicator indicates that the company has problems repaying debts to creditors; too high - indicates an insufficiently effective policy for collecting receivables.
The absolute liquidity ratio shows what share of accounts payable an enterprise can pay off immediately using the most liquid part of its assets:
(short-term financial investments + cash) /
/ accounts payable.
The recommended value of the indicator is 0.01.0.02. Analysis of liquidity indicators can serve as a basis for making operational decisions. The following standard operational solutions are proposed: if the deterioration in the liquidity of an enterprise is associated with the presence of overdue debt of the municipality (i.e. the value of the indicator, calculated taking into account the reduction of the enterprise's accounts payable by the amount of overdue debt of the municipality, is within acceptable values), a decision can be made to carry out mutual offsets or finding internal budget reserves: in the absence or insignificance of the amount of overdue debt of the municipality, on the basis of an agreement with the head of the municipal enterprise, the amount of his remuneration may change. Accounts receivable
The size and dynamics of receivables by consumer category are analyzed, as well as the presence of the share of overdue receivables.
The dynamics of accounts receivable is analyzed in comparison with revenue, for which the indicator of the average turnover period of accounts receivable is used:
accounts receivable / revenue x x duration of the analyzed period (days).
An increase in the average receivables turnover period indicates a deterioration
financial condition of the enterprise. The reasons for this deterioration may be both the ineffectiveness of the financial management of municipal unitary enterprises and the inability of consumers to pay for services in a timely and full manner. In the event of an unfavorable structure and dynamics of receivables, the owner of the municipal unitary enterprise may require the manager to report on measures to reduce receivables. At the same time, the rapid growth of receivables (including overdue ones) of a certain category of consumers compared to the growth of revenue is a sign of the undesirability of raising tariffs for the corresponding category of consumers.
If there is a significant amount of receivables from the municipality to municipal enterprise a decision may be made to carry out mutual offsets or to find internal budget reserves. Accounts payable
The size, dynamics, structure of accounts payable by category of consumers, as well as the presence and share of overdue accounts payable are analyzed. The excess of the growth rate of accounts payable over the growth rate of working capital, as well as the presence of overdue accounts payable (including wage arrears) indicate a deterioration in the financial condition of the enterprise.
If the unsatisfactory dynamics of accounts payable is associated with the presence of debt of the municipality (i.e., when the amount of accounts payable decreases by the amount of the municipality's accounts receivable to the municipal unitary enterprise, the indicator values become satisfactory), a decision may be made to carry out offsets or to find internal budget reserves.
Information about the dynamics and structure of accounts payable can be taken into account when determining the amount of remuneration for the head of a municipal unitary enterprise. Structure of financial flows
Based on the information provided by the municipal enterprise, the structure of financial flows at the enterprise is analyzed by sources, areas of spending and forms of payment (cash payments or offsets).
The higher the share of cash payments in the structure of financial flows, the more favorable the financial condition of the enterprise. The recommended indicator value is at least 30.35%. The high share of offsets in settlements with consumer organizations and enterprises indicates the undesirability of raising tariffs for these groups of consumers due to their low solvency.
If cash receipts (without offsets) are less than wage costs, this is a sign of the unsatisfactory financial condition of the enterprise.
Financial condition characterize many indicators, but are most widely used to analyze financial condition financial ratios. These are relative indicators of the financial condition of an enterprise, which express the relationship of some absolute financial indicators to others. There are many different coefficients, their selection is determined by the analysis tasks.
Some coefficients must be considered without fail, since they reflect the following main aspects of the enterprise’s activities.
Liquidity:
total liquidity ratio; quick liquidity ratio; absolute liquidity ratio; the ratio of inventory to current assets; depreciation rate.
Solvency:
general solvency ratio (or autonomy ratio); debt-to-equity ratio; ratio of equity to long-term liabilities; share of own funds in long-term assets;
coefficient of provision with own working capital; coefficient of provision of inventory with own funds.
Profitability indicators:
gross profit ratio; operating profit ratio; profitability of sales; return on assets; return on equity; profit ratio on long-term liabilities.
Turnover and capital productivity indicators (business activity):
inventory turnover; accounts receivable turnover; accounts payable turnover; ratio of sales to total assets; sales to working capital ratio; share price; earnings per share; dividend per share; profit dividend.
Balance sheet liquidity- this is the degree to which the enterprise’s liabilities are covered by such assets, the period of transformation of which into cash corresponds to the period of repayment of obligations.
Absolute liquidity ratio is calculated as the ratio of absolutely liquid assets to short-term liabilities:
K abs.l = Cash/Current liabilities.
The ratio shows the amount of current liabilities that can be repaid immediately. Theoretically, the normal value of the coefficient is 0.2-0.3.
Total liquidity ratio(or coverage) is the ratio of current assets to short-term liabilities:
To total = Current assets/Current liabilities.
Normal limit: .
The ratio shows the extent to which current assets cover short-term liabilities.
Solvency, i.e. the ability of an enterprise to fulfill its external short-term and long-term obligations using assets, assesses financial risk and the likelihood of bankruptcy.
Total Solvency Ratio, or autonomy coefficient- is the ratio of equity to the balance sheet total:
To total fees = Own capital/Balance sheet total.
The ratio reflects the share of equity in the company's liabilities and is of interest to owners and creditors. It is believed that the share of equity in liabilities should exceed the share of borrowed funds. The preferred coefficient for an enterprise is 0.4 or 60% or more.
Debt to equity ratio determined by dividing equity by external liabilities:
To ratio = Own capital / External liabilities.
The value of the coefficient is considered normal: .
Indicators for assessing enterprise profitability are defined as follows.
Return on sales- ratio of net (gross) profit to sales volume:
R prod = Net profit/Amount of sales.
Return on assets is the ratio of net profit to assets:
R act = Net profit/Total assets.
R own capital = Net profit/Equity capital.
Turnover and capital productivity indicators are included in the group of coefficients characterizing the efficiency of using funds or business activity of an enterprise.
Turnover indicators characterize the rate at which various funds are converted into cash.
To about = Sales/Accounts Receivable.
The ratio shows how many times a year receivables are converted into cash. A high value of this indicator has a positive effect on liquidity and solvency indicators.