It involves the analysis of a system of various financial ratios. The main financial ratios for analyzing the activities of the enterprise
Before proceeding directly to the topic of the article, you should understand the essence of the concept financial activities enterprises.
Financial activity in the enterprise- This financial planning and budgeting the financial analysis, management of financial relations and monetary funds, determination and implementation of investment policy, organization of relations with budgets, banks, etc.
Financial activity solves such problems as:
- providing the enterprise with the necessary financial resources for funding its production and marketing activities, as well as for the implementation of investment policy;
- use of opportunities to improve efficiency enterprise activities;
- ensure timely repayment current and long-term liabilities;
- determination of optimal credit conditions to expand the volume of sales (deferment, installment plan, etc.), as well as the collection of formed receivables;
- motion control and redistribution financial resources within the boundaries of the enterprise.
Analysis Feature
Financial indicators make it possible to measure the effectiveness of work in the above areas. For example, liquidity ratios measure the ability to repay short-term obligations on time, while financial strength ratios, which are the ratio of equity to debt, measure the ability to meet obligations in the long term. The financial stability ratios of the second group, which show the adequacy of working capital, make it possible to understand the availability of financial resources to finance activities.
Profitability indicators and business activity(turnover) show how the company uses the available opportunities to improve work efficiency. Analysis of receivables and payables allows you to understand the credit policy. Considering that profit is formed under the influence of all factors, it can be argued that the analysis of financial results and profitability analysis allows us to obtain a cumulative assessment of the quality of the financial activity of an enterprise.
The effectiveness of financial activity can be judged by two aspects:
- results financial activities;
- Financial condition enterprises.
The first is expressed by how effectively the company can use the assets it has, and most importantly, whether it is able to generate profit and to what extent. The higher the financial result for each ruble of invested resources, the better the result of financial activity. However, profitability and turnover are not the only indicators of a company's financial performance. The opposite and related category is the level of financial risk.
The current financial condition of the enterprise just means how sustainable is the economic system. If a company is able to meet its obligations in the short and long term, ensure the continuity of the production and marketing process, and also reproduce the resources expended, then it can be assumed that while maintaining the current market conditions the business will continue to operate. In this case, the financial condition can be considered acceptable.
If the company is able to generate high profits in the short and long term, then we can talk about efficient financial performance.
In the process of analyzing the financial activities of an enterprise, both in the analysis of financial results and in the process of assessing the state, the following methods should be used:
- horizontal analysis - analysis speakers financial result, as well as assets and sources of their financing, will determine the general trends in the development of the enterprise. As a result, one can understand the medium and long term of his work;
- vertical analysis - assessment of the formed structures assets, liabilities and financial results will reveal imbalances or make sure the current performance of the company is stable;
- comparison method - comparison data with competitors and industry averages will allow you to determine the effectiveness of the company's financial activities. If the enterprise demonstrates higher profitability, then we can talk about high-quality work in this direction;
- coefficient method - in the case of studying the financial activities of an enterprise, this method is important, since its use will allow you to get a set indicators, which characterize both the ability to demonstrate high results and the ability to maintain stability.
- factor analysis - allows you to determine the main factors that influenced the current financial position and financial performance of the company.
Analysis of the financial results of the enterprise
Investors are interested in profitability, as it allows you to evaluate the effectiveness of management activities and the use of capital that was provided by the latter for the purpose of making a profit. Other participants in financial relationships, such as creditors, employees, suppliers and customers are also interested in understanding the profitability of the company, as this allows you to estimate how smoothly the company will operate in the market.
Therefore, the analysis of profitability allows you to understand how effectively the management implements the company's strategy for the formation of financial results. Given the large number of tools that are in the hands of an analyst when evaluating profitability, it is important to use a combination of different methods and approaches in the process.
While firms report net income, more important indicator the aggregate financial result is considered as an indicator that better shows the profitability of the company's shares. There are two main alternative approaches to assessing profitability.
First approach provides for consideration of various transformations of the financial result. Second approach– indicators of profitability and profitability. In the case of the first approach, such indicators as the profitability of the company's shares, horizontal and vertical analysis, assessment of the growth of indicators, consideration of various financial results ( gross profit, profit before tax, etc.). In the case of the second approach, the return on assets and return on equity indicators are used, which provide for obtaining information from the balance sheet and the income statement.
These two metrics can be broken down into profit margin, leverage, and turnover to better understand how a company generates wealth for its shareholders. In addition, margin, turnover and leverage ratios can be analyzed in more detail and broken down into different lines of financial statements.
Analysis of financial performance of the enterprise
It is worth noting that the most important method is the method of indicators, it is also the method of relative indicators. Table 1 presents groups of financial ratios that are best suited for performance analysis.
Table 1 - The main groups of indicators that are used in the process of assessing the financial result of the company
It is worth considering each of the groups in more detail.
Turnover indicators (indicators of business activity)
Table 2 presents the most commonly used business activity ratios. It shows the numerator and denominator of each coefficient.
Table 2 - Turnover indicators
|
Indicator of business activity (turnover) |
Numerator |
Denominator |
|
Cost price |
Average inventory value |
|
|
Number of days in the period (for example, 365 days if using yearly data) |
inventory turnover |
|
|
Average value of accounts receivable |
||
|
Number of days in the period |
Accounts receivable turnover |
|
|
Cost price |
Average value of accounts payable |
|
|
Number of days in the period |
Accounts payable turnover |
|
|
Working capital turnover |
Average cost of working capital |
|
|
Average cost of fixed assets |
||
|
Average asset value |
Interpretation of turnover indicators
Inventory turnover and one turnover period . Inventory turnover is the backbone of operations for many organizations. The indicator indicates resources (money) that are in the form of reserves. Therefore, such a ratio can be used to indicate the effectiveness of inventory management. The higher the inventory turnover ratio, the shorter the period of inventory in the warehouse and in production. In general, the inventory turnover and the period of one inventory turnover should be estimated according to industry standards.
Tall Inventory turnover ratios compared to industry norms can indicate high inventory management efficiency. However, it is also possible that this turnover ratio (and a low one-period turnover rate) could indicate that the company is not building up adequate inventory, which could hurt earnings.
To assess which explanation is more likely, an analyst can compare a company's earnings growth with industry growth. Slower growth combined with higher inventory turnover may indicate insufficient inventory levels. Revenue growth at or above industry growth supports the interpretation that high turnover reflects greater efficiency in inventory management.
Short an inventory turnover ratio (and therefore a high turnover period) relative to the industry as a whole can be an indicator of slow inventory movement in the operating process, perhaps due to technological obsolescence or a change in fashion. Again, by comparing a company's sales growth with the industry, one can get the gist of current trends.
The turnover of receivables and the period of one turnover of receivables . The receivables turnover period represents the time elapsed between sale and collection, which reflects how quickly the company collects cash from customers to whom it offers credit.
Although it is more correct to use credit sales as the numerator, information on credit sales is not always available to analysts. Therefore, revenue reported in the income statement is generally used as the numerator.
A relatively high receivables turnover ratio may indicate a high efficiency of commodity lending to clients and collection of money by them. On the other hand, a high receivables turnover ratio may indicate that credit or debt collection terms are too tight, indicating a possible loss of sales to competitors who offer softer terms.
Relatively low receivables turnover tends to raise questions about the effectiveness of credit and collection procedures. As with inventory management, comparing company and industry sales growth can help an analyst assess whether sales are lost due to a strict credit policy.
In addition, by comparing uncollectible receivables and actual loan losses with past experience and peers, it can be assessed whether low turnover reflects a problem in managing commercial lending to clients. Companies sometimes provide information about the line of receivables. This data can be used in conjunction with turnover rates to draw more accurate conclusions.
Accounts payable turnover and accounts payable turnover period . The accounts payable turnover period reflects the average number of days a company spends paying its suppliers. The accounts payable turnover ratio indicates how many times a year a company conditionally covers debts to its creditors.
For the purposes of calculating these indicators, it is assumed that the company makes all its purchases with the help of a commodity (commercial) loan. If the volume of goods purchased is not available to the analyst, then the cost of goods sold indicator can be used in the calculation process.
Tall The accounts payable turnover ratio (low period of one turnover) in relation to the industry may indicate that the company is not fully using the available credit funds. On the other hand, this may mean that the company uses a system of discounts for earlier payments.
Too low the turnover ratio may indicate problems with the timely payment of debts to suppliers or the active use of soft credit conditions for the supplier. This is another example of when other metrics should be looked at to form weighted conclusions.
If the liquidity indicators indicate that the company has sufficient cash and other short-term assets to pay liabilities, and yet the accounts payable turnover period is high, then this will indicate the supplier's lenient credit conditions.
Working capital turnover . Working capital is defined as current assets minus current liabilities. Working capital turnover indicates how efficiently a company generates income from working capital. For example, a working capital ratio of 4 indicates that the company generates $4 of revenue for every $1 of working capital.
A high value of the indicator indicates greater efficiency (i.e., the company generates high level income relative to a smaller amount of attracted working capital). For some companies, the amount of working capital may be close to zero or negative, which makes this indicator difficult to interpret. The next two coefficients will be useful in these circumstances.
Turnover of fixed assets (capital productivity) . This metric measures how efficiently a company generates returns on its fixed investment. As a rule, more tall the turnover ratio of fixed assets shows a more efficient use of fixed assets in the process of generating income.
Low a value may indicate inefficiency, capital intensity of the business, or that the business is not operating at full capacity. In addition, the turnover of fixed assets may be formed under the influence of other factors not related to business efficiency.
The rate of return on assets will be lower for companies whose assets are newer (and therefore less depreciated, which is reflected in the financial statements by a higher carrying value) compared to companies with older assets (which are more depreciated and therefore are reflected at a lower book value (subject to the use of the revaluation mechanism).
The rate of return on assets can be unstable, since incomes can have steady growth rates, and the increase in fixed assets is jerky; therefore, each annual change in the indicator does not necessarily indicate important changes in the company's performance.
Asset turnover . The total asset turnover ratio measures the overall ability of a company to generate income with a given level of assets. A ratio of 1.20 would mean that the company generates 1.2 rubles of income for every 1 ruble of attracted assets. A higher ratio indicates a greater efficiency of the company.
Because this ratio includes both fixed assets and working capital, poor management of working capital can distort the overall interpretation. Therefore, it is useful to analyze working capital and return on assets separately.
Short the asset turnover ratio may indicate unsatisfactory performance or a relatively high level of capital intensity of the business. The indicator also reflects strategic management decisions: for example, the decision to take a more labor-intensive (and less capital-intensive) approach to your business (and vice versa).
The second important group of indicators are profitability and profitability ratios. These include the following ratios:
Table 3 - Indicators of profitability and profitability
|
Indicator of profitability and profitability |
Numerator |
Denominator |
|
Net profit |
Average asset value |
|
|
Net profit |
||
|
Gross profit |
||
|
Sales profit |
||
|
Net profit |
||
|
Average asset value |
Net profit |
|
|
Average cost of equity |
Net profit |
Profitability indicator assets shows how much profit or loss the company receives for each ruble of invested assets. A high value of the indicator indicates the effective financial activity of the enterprise.
Return on equity is a more important indicator for the owners of the enterprise, since this ratio is used when evaluating investment alternatives. If the value of the indicator is higher than in alternative investment instruments, then we can talk about the quality of the financial activity of the enterprise.
Margin metrics provide insight into sales performance. Gross margin shows how much more resources the company has left for management and sales expenses, interest expenses, etc. Operating margin demonstrates the effectiveness of the organization's operational process. This indicator allows you to understand how much operating profit will increase with an increase in sales by one ruble. net margin takes into account the influence of all factors.
Return on assets and equity allows you to determine how much time it takes for the company to pay off the funds raised.
Analysis of the financial condition of the enterprise
The financial condition, as mentioned above, means the stability of the current financial and economic system of the enterprise. To study this aspect, the following groups of indicators can be used.
Table 4 - Groups of indicators that are used in the process of assessing the state
Liquidity ratios (liquidity ratios)
Liquidity analysis that focuses on movement Money, measures a company's ability to meet its short-term obligations. The main indicators of this group are a measure of how quickly assets turn into cash. In day-to-day operations, liquidity management is usually achieved through effective use assets.
The level of liquidity must be considered depending on the industry in which the company operates. The liquidity position of a particular company may also vary depending on the anticipated need for funds at any given time.
The assessment of liquidity adequacy requires an analysis of the company's historical funding needs, current liquidity position, expected future funding needs, and options to reduce funding requirements or raise additional funds (including actual and potential sources of such funding).
Large companies tend to have better control over the level and composition of their liabilities than smaller companies. Thus, they may have more potential sources of funding, including owner equity and credit market funds. Access to capital markets also reduces the required liquidity buffer compared to companies without such access.
Contingent liabilities such as letters of credit or financial guarantees may also be relevant in assessing liquidity. The importance of contingent liabilities varies for the non-banking and banking sectors. In the non-banking sector, contingent liabilities (usually disclosed in a company's financial statements) represent a potential cash outflow and should be included in an assessment of a company's liquidity.
Calculation of liquidity ratios
The main liquidity ratios are presented in table 5. These liquidity ratios reflect the position of the company at a certain point in time and, therefore, use data at the end of the balance sheet date, and not average balance sheet values. Indicators of current, quick and absolute liquidity reflect the company's ability to pay current obligations. Each of them uses a progressively stricter definition of liquid assets.
Measures how long a company can pay its daily cash costs using only existing liquid assets, without additional cash flows. The numerator of this ratio includes the same liquid assets used in quick liquidity, and the denominator is an estimate of daily cash costs.
To obtain daily cash costs, the total cash costs for the period are divided by the number of days in the period. Therefore, in order to obtain cash expenses for the period, it is necessary to summarize all expenses in the income statement, including such as: cost; marketing and administrative expenses; other expenses. However, the amount of expenses should not include non-cash expenses, for example, the amount of depreciation.
Table 5 - Liquidity ratios
|
Liquidity indicators |
Numerator |
Denominator |
|
current assets |
Current responsibility |
|
|
Current assets - stocks |
Current responsibility |
|
|
Short-term investments and cash and cash equivalents |
Current responsibility |
|
|
Guard interval indicator |
Current assets - stocks |
Daily expenses |
|
Inventory turnover period + Accounts receivable turnover period – Accounts payable turnover period |
The financial cycle is a metric that is not calculated in the form of a ratio. It measures the length of time it takes for an enterprise to go from investing money (invested in activities) to receiving cash (as a result of activities). During this time period, the company must fund its investment operations from other sources (ie, debt or equity).
Interpretation of liquidity ratios
Current liquidity . This measure reflects current assets (assets that are expected to be consumed or converted into cash within one year) per ruble of current liabilities (obligations due within one year).
More tall the ratio indicates a higher level of liquidity (i.e., a higher ability to meet short-term obligations). A current ratio of 1.0 would mean that the carrying amount of current assets is exactly equal to the carrying amount of all current liabilities.
More low the value of the indicator indicates less liquidity, which implies a greater dependence on operating cash flow and external financing to meet short-term liabilities. Liquidity affects a company's ability to borrow money. The current ratio is based on the assumption that inventories and receivables are liquid (if inventories and receivables are low, this is not the case).
Quick liquidity ratio . The quick ratio is more conservative than the current ratio as it only includes the most liquid current assets (sometimes called "quick assets"). Like the current ratio, a higher quick ratio indicates the ability to meet debts.
This indicator also reflects the fact that inventories cannot be easily and quickly converted into cash, and, in addition, the company will not be able to sell its entire inventory of raw materials, materials, goods, etc. for an amount equal to its book value, especially if that inventory needs to be sold quickly. In situations where inventories are illiquid (for example, if inventory turnover ratios are low), quick liquidity may be a better indicator of liquidity than current ratio.
Absolute liquidity . The ratio of cash to current liabilities is usually a reliable measure of the liquidity of an individual enterprise in a crisis. Only highly liquid short-term investments and cash are included in this indicator. However, it should be taken into account that during a crisis, the fair value of liquid securities can significantly decrease as a result of market factors, and in this case it is advisable to use only cash and cash equivalents in the process of calculating absolute liquidity.
Guard interval indicator . This ratio measures how long a company can continue to pay its expenses from its available liquid assets without receiving any additional cash inflows.
A guard margin of 50 would mean that the company could continue to pay its operating expenses for 50 days from fast assets without any additional cash inflows.
The higher the guard interval, the higher the liquidity. If a company's guard band score is very low compared to peers or compared to the company's own history, the analyst needs to clarify whether there is sufficient cash inflow for the company to meet its obligations.
financial cycle . This indicator indicates the amount of time that elapses from the moment a company invests money in other forms of assets until the moment it collects money from customers. A typical operating process is to receive inventories on a deferred basis, which creates accounts payable. The company then also sells these inventories on credit, which results in an increase in receivables. After that, the company pays its bills for the delivered goods and services, and also receives payment from customers.
The time between spending money and collecting money is called the financial cycle. More short cycle indicates greater liquidity. It means that the company only has to fund its inventory and receivables for a short period of time.
More long cycle indicates lower liquidity; this means that the company must finance its inventory and receivables over a longer period of time, which may result in the need to raise additional funds to build working capital.
Indicators of financial stability and solvency
Solvency ratios are basically of two types. Debt ratios (the first type) focus on the balance sheet, and measure the amount of debt capital in relation to equity or the total amount of a company's funding sources.
Coverage ratios (the second type of metric) focus on the income statement and measure a company's ability to meet its debt payments. All of these indicators can be used in assessing a company's creditworthiness and therefore in assessing the quality of a company's bonds and other debt obligations.
Table 6 - Indicators of financial stability
|
Indicators |
Numerator |
Denominator |
|
Total liabilities (long-term + short-term liabilities) |
Total liabilities |
|
|
Equity |
Total liabilities |
|
|
Debt to Equity |
Total liabilities |
Equity |
|
financial leverage |
Equity |
|
|
Interest coverage ratio |
Profit before taxes and interest |
Percentage to be paid |
|
Fixed payment coverage ratio |
Profit before taxes and interest + lease payments + rent |
Interest payable + lease payments + rent |
In general, these indicators are most often calculated in the manner shown in Table 6.
Solvency Ratios Interpretation
Indicator of financial dependence . This ratio measures the percentage of total assets financed by debt. For example, a debt-to-asset ratio of 0.40 or 40 percent indicates that 40 percent of a company's assets are funded by debt. Generally, a higher share of debt means higher financial risk and thus weaker solvency.
Indicator of financial autonomy . The indicator measures the percentage of a company's equity (debt and equity) represented by equity. Unlike the previous ratio, a higher value usually means lower financial risk and thus indicates strong solvency.
Debt to equity ratio . The debt-to-equity ratio measures the amount of debt capital in relation to equity. The interpretation is similar to the first indicator (i.e., a higher ratio indicates poor solvency). A ratio of 1.0 would indicate equal amounts of debt and equity, which is equivalent to a debt-to-liability ratio of 50 percent. Alternative definitions of this ratio use the market value of shareholders' equity rather than its book value.
financial leverage . This ratio (often referred to simply as the leverage ratio) measures the amount of total assets supported by each currency unit of equity. For example, a value of 3 for this indicator means that every 1 ruble of capital supports 3 rubles of total assets.
The higher the ratio financial leverage the more leveraged a company has to use debt and other liabilities to fund assets. This ratio is often defined in terms of average total assets and average total equity and plays an important role in the decomposition of return on equity in the DuPont methodology.
Interest coverage ratio . This metric measures how many times a company can cover its interest payments from pre-tax earnings and interest payments. A higher interest coverage ratio indicates stronger solvency and solvency, providing creditors with high confidence that the company can service its debt (i.e., banking sector debt, bonds, bills, debt of other enterprises) from operating income.
Fixed payment coverage ratio . This metric takes into account fixed expenses or liabilities that result in a stable cash outflow for the company. It measures the number of times a company's earnings (before interest, taxes, rent, and leases) can cover interest and lease payments.
Like the interest coverage ratio, a higher fixed payment ratio implies strong solvency, meaning that the business can service its debt through core business. The indicator is sometimes used to determine the quality and probability of receiving dividends on preferred shares. If the value of the indicator is higher, then this indicates a high probability of receiving dividends.
Analysis of the financial activity of the enterprise on the example of PJSC "Aeroflot"
To demonstrate the process of analyzing financial activity, you can use the example famous company PJSC Aeroflot.
Table 6 – Dynamics of assets of PJSC Aeroflot in 2013-2015, million rubles
|
Indicators |
Absolute deviation, +,- |
Relative deviation, % |
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Intangible assets |
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Research and development results |
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fixed assets |
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Long-term financial investments |
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Deferred tax assets |
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Other noncurrent assets |
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NON-CURRENT ASSETS TOTAL |
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Value added tax on acquired valuables |
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Receivables |
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Short-term financial investments |
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Cash and cash equivalents |
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Other current assets |
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CURRENT ASSETS TOTAL |
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As can be judged from the data in Table 6, during 2013-2015 there is an increase in the value of assets - by 69.19% due to the growth of current and non-current assets (Table 6). In general, the company is able to effectively manage working resources, because in the conditions of sales growth by 77.58%, the amount of current assets increased by only 60.65%. The credit policy of the enterprise is of high quality: in the context of a significant increase in revenue, the amount of receivables, the basis of which was the debt of buyers and customers, increased only by 45.29%.
The amount of cash and cash equivalents is growing from year to year and amounted to about 29 billion rubles. Given the value of the absolute liquidity ratio, it can be argued that this indicator is too high - if the absolute liquidity of the largest competitor UTair is only 19.99, then in PJSC Aeroflot this indicator was 24.95%. Money is the least productive part of the assets, so if there are free funds, they should be directed, for example, to short-term investment instruments. This will provide additional financial income.
Due to the depreciation of the ruble, the cost of inventories increased significantly due to an increase in the cost of components, spare parts, materials, as well as due to an increase in the cost of jet fuel despite the decline in oil prices. Therefore, stocks grow faster than sales volume.
The main factor behind the growth of non-current assets is the increase in accounts receivable, payments on which are expected more than 12 months after the date of the report. The basis of this indicator is advance payments for the supply of A-320/321 aircraft, which will be received by the company in 2017-2018. In general, this trend is positive, as it allows the company to ensure the development and increase of competitiveness.
The enterprise financing policy is as follows:
Table 7 - Dynamics of the sources of financial resources of Aeroflot PJSC in 2013-2015, million rubles
|
Indicators |
Absolute deviation, +,- |
Relative deviation, % |
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|
Authorized capital (share capital, statutory fund, contributions of comrades) |
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|
Own shares repurchased into shareholders |
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|
Revaluation of non-current assets |
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|
Reserve capital |
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|
Retained earnings (uncovered loss) |
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|
OWN CAPITAL AND RESERVES |
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|
Long-term borrowings |
||||||||
|
Deferred tax liabilities |
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|
Provisions for contingent liabilities |
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|
LONG-TERM LIABILITIES TOTAL |
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|
Short-term borrowings |
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|
Accounts payable |
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|
revenue of the future periods |
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|
Reserves for future expenses and payments |
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|
SHORT-TERM LIABILITIES TOTAL |
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A clearly negative trend is the reduction in the amount of equity by 13.4 for the study period due to a significant net loss in 2015 (Table 7). This means that the wealth of investors has significantly decreased, and the level of financial risks has increased due to the need to raise additional funds to finance the growing volume of assets.
As a result, the amount of long-term liabilities increased by 46%, and the amount of current liabilities - by 199.31%, which led to a catastrophic decline in solvency and liquidity indicators. A significant increase in borrowed funds leads to an increase in financial costs for debt servicing.
Table 8 – Dynamics of financial results of PJSC Aeroflot in 2013-2015, million rubles
|
Indicators |
Absolute deviation, +,- |
Relative deviation, % |
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|
Cost of sales |
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|
Gross profit (loss) |
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|
Selling expenses |
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|
Management expenses |
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|
Profit (loss) from sales |
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Income from participation in other organizations |
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|
Interest receivable |
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|
Percentage to be paid |
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Other income |
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|
other expenses |
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|
Profit (loss) before tax |
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|
Current income tax |
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|
Change in deferred tax liabilities |
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|
Change in deferred tax assets |
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|
Net income (loss) |
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In general, the process of forming the financial result was inefficient due to an increase in interest payable and other expenses by 270.85%, as well as due to an increase in other expenses by 416.08% (Table 8). The write-off of PJSC Aeroflot's share in authorized capital LLC "Dobrolet" in connection with the termination of activities. Although this is a significant loss of funds, it is not a permanent expense, so it does not say anything bad about the ability to carry out uninterrupted operations. However, other reasons for the increase in other expenses may threaten stable activity companies. In addition to the write-off of part of the shares, other expenses also increased due to leasing expenses, expenses from hedging transactions, as well as due to the formation of significant reserves. All this indicates ineffective risk management in the framework of financial activities.
Indicators
Absolute deviation, +,-
Current liquidity ratio
Quick liquidity ratio
Absolute liquidity ratio
The ratio of short-term receivables and payables
Liquidity indicators speak of serious problems with solvency already in the short term (Table 9). As mentioned earlier, absolute liquidity is excessive, which leads to incomplete use of the financial potential of the enterprise.
On the other hand, the current ratio is significantly below the norm. If in UTair, the company's direct competitor, the indicator was 2.66, then in Aeroflot PJSC it was only 0.95. This means that the company may experience problems with the timely repayment of current liabilities.
Table 10 – Financial stability indicators of PJSC Aeroflot in 2013-2015
|
Indicators |
Absolute deviation, +,- |
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Own working capital, million rubles |
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|
Coefficient of current assets provision with own funds |
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Maneuverability of your own working capital |
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Coefficient of provision with own working capital stocks |
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Financial autonomy ratio |
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Financial dependency ratio |
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Financial leverage ratio |
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Equity maneuverability ratio |
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Short-term debt ratio |
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Financial stability ratio (investment coverage) |
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Asset mobility ratio |
Financial autonomy also dropped significantly to 26% in 2015 from 52% in 2013. This indicates more low level protection of creditors and a high level of financial risks. The indicators of liquidity and financial stability made it possible to understand that the state of the company is unsatisfactory. Consider also the company's ability to generate a positive financial result. Table 11 – Business activity indicators of Aeroflot PJSC (turnover indicators) in 2014-2015
In general, the turnover of the main elements of assets, as well as equity, increased (Table 11). However, it is worth noting that the reason for this trend is the growth of the national currency, which led to a significant increase in ticket prices. It is also worth noting that the asset turnover is significantly higher than that of UTair's direct competitor. Therefore, it can be argued that, in general, the operating process of the company is effective. Table 12 - Profitability (loss ratio) of PJSC Aeroflot
The company was unable to generate profit in 2015 (Table 12), which led to a significant deterioration in the financial result. For each attracted ruble of assets, the company received 11.18 kopecks of net loss. In addition, the owners received 32.19 kopecks of net loss for each ruble of invested funds. Therefore, it is obvious that the financial performance of the company is unsatisfactory. 2. Thomas R. Robinson, International financial statement analysis / Wiley, 2008, 188 pp. 3. site - Online program for calculating financial indicators // URL: https://www.site/ru/ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial ratios reflect the relationship between various reporting items (revenue and total assets, cost and amount of accounts payable, etc.).
The analysis procedure using financial ratios involves two stages: the actual calculation of financial ratios and their comparison with the base values. The industry average values of the coefficients, their values for previous years, the values of these coefficients for the main competitors, etc. can be chosen as the basic values of the coefficients.
The advantage of this method lies in its high "standardization". All over the world, the main financial ratios are calculated using the same formulas, and if there are differences in the calculation, then such ratios can easily be brought to generally accepted values using simple transformations. In addition, this method makes it possible to eliminate the effect of inflation, since almost all coefficients are the result of dividing one reporting item into another, i.e., not the absolute values that appear in the reporting, but their ratios are studied.
Despite the convenience and relative ease of use this method, financial ratios do not always make it possible to unambiguously determine the state of affairs of the company. Usually a big difference a certain coefficient from the average value of the industry or from the value of this coefficient from a competitor indicates the presence of an issue that needs more detailed analysis, but does not indicate that the enterprise clearly has a problem. A more detailed analysis using other methods may reveal the presence of a problem, but may also explain the deviation of the coefficient by features economic activity enterprises that do not lead to financial difficulties.
For Internet companies, regular calculation of financial ratios is a convenient tool for tracking the current state of the enterprise. In a rapidly growing network market, their relative nature allows you to exclude the influence of many factors that distort the absolute values of reporting indicators.
Various financial ratios reflect certain aspects of the activity and financial condition enterprises. They are usually divided into groups:
liquidity ratios. Liquidity refers to the ability of a company to repay its obligations on time. These ratios operate on the ratio of the values of the company's assets and the values of short-term and long-term liabilities;
· coefficients reflecting the effectiveness of asset management. These coefficients are used to assess the compliance of the size of certain assets of the company with the tasks performed. They operate with such values as the size of inventories, current and non-current assets, receivables, etc.;
· coefficients reflecting the capital structure of the company. This group includes coefficients that operate on the ratio of own and borrowed funds. They show from what sources the company's assets are formed, and how much the company is financially dependent on creditors;
profitability ratios. These ratios show how much income a company derives from its assets. Profitability ratios allow for a comprehensive assessment of the company's activities as a whole, according to the final result;
market activity ratios. The coefficients of this group operate with the ratio of market prices for the company's shares, their nominal prices and earnings per share. They allow you to assess the position of the company in the securities market.
Let us consider these groups of coefficients in more detail. The main liquidity ratios are:
current (total) liquidity ratio (Current ratio). It is defined as the quotient of the size of the company's working capital divided by the size of current liabilities. Current assets include cash, accounts receivable (net of doubtful debts), inventories and other quickly realizable assets. Current liabilities consist of accounts payable, short-term accounts payable, accruals on wages and taxes and other short-term liabilities. This ratio shows whether the company has enough funds to pay off current liabilities. If the value of this ratio is less than 2, then the company may have problems with the repayment of short-term obligations, expressed in delayed payments;
· Quick ratio. At its core, it is similar to the current ratio, but instead of the full amount of working capital, it uses only the amount of working capital that can be quickly turned into money. The least liquid part of working capital is inventory. Therefore, when calculating the quick liquidity ratio, they are excluded from working capital. The ratio shows the company's ability to pay off its short-term obligations in a relatively short time. It is believed that for a normally functioning company, its value should be in the range from 0.7 to 1;
absolute liquidity ratio. This ratio shows how much of a company's short-term liabilities can be repaid almost instantly. It is calculated as the quotient of dividing the amount of cash in the company's accounts by the amount of short-term liabilities. Its value is considered normal in the range from 0.05 to 0.025. If the value is below 0.025, then the company may have problems paying off current liabilities. If it is more than 0.05, then, perhaps, the company is irrationally using free cash.
The following coefficients are used to assess the effectiveness of asset management:
Inventory turnover ratio. It is defined as the quotient of sales revenue for reporting period(year, quarter, month) by the average value of stocks for the period. It shows how many times during the reporting period the reserves were transformed into finished products, which, in turn, was sold, and stocks were again acquired with the proceeds from the sale (how many “turns” of stocks were made during the period). This is the standard approach to calculating the inventory turnover ratio. There is also an alternative approach based on the fact that the sale of products occurs at market prices, which leads to an overestimation of the inventory turnover ratio when using sales proceeds in its numerator. To eliminate this distortion, instead of revenue, you can take the cost of goods sold for the period or, which will give an even more accurate result, the total cost of the enterprise for the period for the purchase of inventory. The inventory turnover ratio is highly dependent on the industry in which the company operates. For Internet companies, it is usually higher than for ordinary enterprises, since most Internet companies operate in the field of network trading or in the service sector, where turnover is usually higher than in manufacturing;
· Total asset turnover ratio. It is calculated as the quotient of the division of the sales proceeds for the period by the total assets of the enterprise (average for the period). This ratio shows the turnover of all assets of the company;
turnover of receivables. It is calculated as the quotient of dividing the proceeds from sales for the reporting period by the average value of accounts receivable for the period. The coefficient shows how many times during the period the receivables were formed and repaid by buyers (how many "turns" of receivables were made). A more illustrative version of this ratio is the average receivables repayment period for buyers (in days) or the average collection period (ACP). To calculate it, the average receivables for the period are divided by average revenue from sales for one day of the period (calculated as revenue for the period divided by the length of the period in days). The ACP shows how many days, on average, it takes from the date of shipment of products to the date of receipt of payment. The practice of Internet companies that has developed in Russia, as a rule, does not provide for a deferred payment to customers. For the most part, Internet companies operate on a pre-paid or pay-at-delivery basis. Thus, for the majority of Russian network enterprises, the ACP indicator is close to zero. As the Internet business develops, this figure will increase;
Accounts payable turnover ratio. It is calculated as the quotient of the cost of goods sold for the period divided by the average value of accounts payable for the period. The coefficient shows how many times during the period accounts payable arose and was repaid;
· capital productivity ratio or fixed assets turnover (Fixed asset turnover ratio). It is calculated as the ratio of sales revenue for the period to the cost of fixed assets. The coefficient shows how much revenue for the reporting period was brought by each ruble invested in the company's fixed assets;
· equity turnover ratio. Equity refers to the total assets of a company less liabilities to third parties. Equity capital consists of the capital invested by the owners and all profits earned by the company, less taxes paid out of profits and dividends. The coefficient is calculated as the quotient of the division of the proceeds from sales for the analyzed period by the average value of equity capital for the period. It shows how much revenue each ruble of the company's equity brought in for the period.
The capital structure of the company is analyzed using the following ratios:
· the share of borrowed funds in the structure of assets. The ratio is calculated as the quotient of the amount of borrowed funds divided by the total assets of the company. Borrowed funds include short-term and long-term liabilities of the company to third parties. The ratio shows how dependent on creditors the company is. The normal value of this coefficient is about 0.5. In addition to this ratio, the financial dependence ratio is sometimes calculated, which is defined as the quotient of dividing the amount of borrowed funds by the amount of own funds. A level of this coefficient exceeding one is considered dangerous;
· security of interest payable, TIE (Time-Interest-Earned). The coefficient is calculated as the quotient of profit before interest and taxes divided by the amount of interest payable for the analyzed period. The ratio shows the company's ability to pay interest on borrowed funds.
Profitability ratios are very informative. Of these, the most important are the following:
Profit margin of sales. Calculated as a quotient of net income divided by sales revenue. The coefficient shows how many rubles of net profit each ruble of revenue brought;
return on assets, ROA (Return of Assets). Calculated as a quotient of net profit divided by the amount of assets of the enterprise. This is the most overall coefficient, which characterizes the effectiveness of the company's use of assets at its disposal;
· return on equity, ROE (Return of Equity). Calculated as the quotient of net income divided by the amount of ordinary share capital. Shows profit for each ruble invested by investors;
income generation ratio, BEP (Basic Earning Power). It is calculated as the quotient of earnings before interest and taxes divided by the company's total assets. This coefficient shows how much profit for each ruble of assets the company would earn in a hypothetical tax-free and interest-free situation. The coefficient is convenient for comparing the performance of enterprises that are under different tax conditions and have a different capital structure (the ratio of own and borrowed funds).
The company's market activity ratios allow assessing the company's position in the securities market and the attitude of shareholders to the company's activities:
· share quotation ratio, М/В (Market/Book). It is calculated as the ratio of the market price of a share to its book value;
Earnings per ordinary share. It is calculated as the ratio of the dividend per ordinary share to the market price of the share.
Let's analyze the 12 main coefficients of the financial analysis of the enterprise. Due to their great diversity, it is often impossible to understand which of them are the main ones and which are not. Therefore, I tried to highlight the main indicators that fully describe the financial and economic activities of the enterprise.
In activity, an enterprise always faces its two properties: its solvency and its efficiency. If the solvency of the enterprise increases, then the efficiency decreases. An inverse relationship can be observed between them. Both solvency and performance can be described by coefficients. You can dwell on these two groups of coefficients, however, it is better to split them in half. So the Solvency group is divided into Liquidity and Financial stability, and the Enterprise Efficiency group is divided into Profitability and Business activity.
We divide all coefficients of financial analysis into four large groups of indicators.
- Liquidity ( short-term solvency),
- Financial stability (long-term solvency),
- Profitability ( financial efficiency),
- Business activity ( non-financial efficiency).
The table below shows the division into groups.
In each of the groups, we will select only the top 3 coefficients, as a result, we will have only 12 coefficients. These will be the most important and main coefficients, because, in my experience, they most fully describe the activities of the enterprise. The rest of the coefficients that are not included in the top, as a rule, are a consequence of these. Let's get down to business!
Top 3 Liquidity Ratios
Let's start with the golden trio of liquidity ratios. These three ratios give a complete understanding of the company's liquidity. This includes three ratios:
- current liquidity ratio,
- absolute liquidity ratio,
- Quick liquidity ratio.
Who uses liquidity ratios?
The most popular among all coefficients - it is used mainly by investors in assessing the liquidity of an enterprise.
interesting for suppliers. It shows the ability of the enterprise to pay off contractors-suppliers.
Calculated by lenders to assess the quick solvency of the enterprise when issuing loans.
The table below shows the formula for calculating the three most important liquidity ratios and their standard values.
|
Odds |
Formula | Calculation |
Standard |
|
| 1 | Current liquidity ratio |
Current liquidity ratio \u003d Current assets / Short-term liabilities |
Ktl= p.1200/ (p.1510+p.1520) |
|
| 2 | Absolute liquidity ratio |
Absolute liquidity ratio = (Cash + Short-term financial investments) / Short-term liabilities |
Cable= p.1250/(str.1510+str.1520) | |
| 3 | Quick liquidity ratio |
Quick liquidity ratio = (Current assets-Stocks)/Current liabilities |
Kbl \u003d (p. 1250 + p. 1240) / (p. 1510 + p. 1520) |
Top 3 Financial Strength Ratios
Let's pass to consideration of three basic factors of financial stability. The key difference between liquidity ratios and financial stability ratios is that the first group (liquidity) reflects short-term solvency, and the last (financial stability) - long-term. But in fact, both liquidity ratios and financial stability ratios reflect the solvency of the enterprise and how it can pay off its debts.
- autonomy coefficient,
- Capitalization ratio,
- The coefficient of security with own working capital.
Autonomy coefficient(financial independence) used financial analysts for their own diagnostics of their enterprise for financial stability, as well as arbitration managers (according to the Decree of the Government of the Russian Federation of June 25, 2003 No. 367 “On approval of the rules for conducting financial analysis by arbitration managers”).
Capitalization ratio important for investors who analyze it to evaluate investments in a particular company. A company with a large capitalization ratio will be more preferable for investment. Too high values of the coefficient are not very good for the investor, as the profitability of the enterprise and thus the income of the investor decreases. In addition, the coefficient is calculated by lenders, the lower the value, the more preferable is the provision of a loan.
recommendatory(according to Decree of the Government of the Russian Federation of May 20, 1994 No. 498 “On certain measures to implement the legislation on insolvency (bankruptcy) of an enterprise”, which became invalid in accordance with Decree 218 of April 15, 2003) is used by arbitration managers. This ratio can also be attributed to the Liquidity group, but here we will attribute it to the Financial Stability group.
The table below shows the formula for calculating the three most important financial stability ratios and their standard values.
|
Odds |
Formula | Calculation |
Standard |
|
| 1 | Autonomy coefficient |
Autonomy Ratio = Equity / Assets |
Kavt = str.1300/p.1600 | |
| 2 | Capitalization ratio |
Capitalization ratio = (Long-term liabilities + Short-term liabilities)/Equity |
Kcap=(p.1400+p.1500)/p.1300 | |
| 3 | Working capital ratio |
The coefficient of provision with own working capital = (Equity - Non-current assets) / Current assets |
Kosos=(p.1300-p.1100)/p.1200 |
Top 3 profitability ratios
Let's move on to the three most important profitability ratios. These ratios show the effectiveness of cash management in the enterprise.
This group of indicators includes three coefficients:
- Return on assets (ROA),
- Return on equity (ROE),
- Return on sales (ROS).
Who uses financial stability ratios?
Return on assets ratio(ROA) is used by financial analysts to diagnose the performance of an enterprise in terms of profitability. The coefficient shows the financial return from the use of the company's assets.
Return on equity ratio(ROE) is of interest to business owners and investors. It shows how effectively the money invested (invested) in the enterprise was used.
Return on sales ratio(ROS) is used by the head of the sales department, investors and the owner of the enterprise. The coefficient shows the effectiveness of the sale of the main products of the enterprise, plus it allows you to determine the share of the cost in sales. It should be noted that what is important is not how many products the company sold, but how much net profit it earned net money from these sales.
The table below shows the formula for calculating the three most important profitability ratios and their standard values.
|
Odds |
Formula | Calculation |
Standard |
|
| 1 | Return on assets (ROA) |
Return on Assets = Net Income / Assets |
ROA = p.2400/p.1600 |
|
| 2 | Return on equity (ROE) |
Return on Equity Ratio = Net Income/Equity |
ROE = str.2400/str.1300 | |
| 3 | Return on sales (ROS) |
Return on Sales Ratio = Net Profit / Revenue |
ROS = p.2400/p.2110 |
Top 3 business activity ratios
We turn to the consideration of the three most important coefficients of business activity (turnover). The difference between this group of coefficients and the group of profitability coefficients lies in the fact that they show the non-financial efficiency of the enterprise.
This group of indicators includes three coefficients:
- Accounts receivable turnover ratio,
- Accounts payable turnover ratio,
- Inventory turnover ratio.
Who uses business activity ratios?
used CEO, commercial director, head of sales department, sales managers, financial director and financial managers. The coefficient shows how effectively the interaction between our company and our counterparties is built.
It is used primarily to determine ways to increase the liquidity of the enterprise and is of interest to the owners and creditors of the enterprise. It shows how many times in the reporting period (usually a year, but maybe a month, quarter) the company repaid its debts to creditors.
Can be used by commercial director, sales manager and sales managers. It determines the effectiveness of inventory management in the enterprise.
The table below shows the formula for calculating the three most important business activity ratios and their standard values. There is a small point in the calculation formula. The data in the denominator, as a rule, are taken as averages, i.e. the value of the indicator at the beginning of the reporting period is added to the end and divided by 2. Therefore, in the formulas, everywhere in the denominator is 0.5.
|
Odds |
Formula | Calculation |
Standard |
|
| 1 | Accounts receivable turnover ratio |
Accounts Receivable Turnover Ratio = Sales Revenue/Average Accounts Receivable |
Kodz \u003d str.2110 / (str.1230np. + str.1230kp.) * 0.5 | dynamics |
| 2 | Accounts payable turnover ratio |
Accounts payable turnover ratio= Sales revenue/Average accounts payable |
Cockz=p.2110/(p.1520np.+p.1520kp.)*0.5 |
dynamics |
| 3 | Inventory turnover ratio |
Inventory Turnover Ratio = Sales Revenue/Average Inventory |
Koz = line 2110 / (line 1210np. + line 1210kp.) * 0.5 |
dynamics |
Summary
Let's sum up the top 12 coefficients for the financial analysis of the enterprise. Conventionally, we have identified 4 groups of performance indicators of the enterprise: Liquidity, Financial stability, Profitability, Business activity. In each group, we have identified the top 3 most important financial ratios. The obtained 12 indicators fully reflect the entire financial and economic activity of the enterprise. It is with the calculation of them that it is worth starting a financial analysis. For each coefficient, a calculation formula is given, so it will not be difficult for you to calculate it for your enterprise.
Financial analysis at the enterprise is needed for an objective assessment of the economic and financial condition in the periods of past, present and predicted future activities. To identify weak production areas, hotbeds of problems, to identify strong factors that management can rely on, the main financial indicators are calculated.
An objective assessment of the company's position in terms of economy and finances is based on financial ratios, which are a manifestation of the ratio of individual accounting data. The goal of financial analysis is to solve the selected set analytical tasks, that is, a concretized analysis of all primary sources of accounting, management and economic reporting.
The main objectives of economic and financial analysis
If the analysis of the main financial indicators of the enterprise is considered as revealing the true state of affairs in the enterprise, then the results are answers to the following questions:
- the company's ability to invest in investing in new projects;
- the present course of affairs in relation to tangible and other assets and liabilities;
- the state of loans and the ability of the enterprise to repay them;
- the existence of reserves to prevent bankruptcy;
- identification of prospects for further financial activities;
- valuation of the enterprise in terms of cost for sale or conversion;
- tracking the dynamic growth or decline of economic or financial activity;
- identifying the causes that negatively affect the results of management and finding ways out of the situation;
- consideration and comparison of income and expenses, identification of net and total profit from sales;
- study of the dynamics of income for the main goods and in general from the entire sale;
- determination of the part of income used for reimbursement of costs, taxes and interest;
- study of the reason for the deviation of the amount of balance sheet profit from the amount of income from sales;
- study of profitability and reserves for its increase;
- determination of the degree of conformity of own funds, assets, liabilities of the enterprise and the amount of borrowed capital.
Stakeholders
The analysis of the main financial indicators of the company 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 entities include shareholders, managers, founders, audit or liquidation commissions;
- external are represented by creditors, audit offices, investors and employees of state bodies.
Financial Analysis Capabilities
The initiators of the analysis of the work of the enterprise are not only its representatives, but also employees of other organizations interested in determining the actual creditworthiness and the possibility of investment 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 wishing to invest in a development fund this enterprise, try to understand the degree of profitability and risks of the deposit. Evaluation of the main financial indicators using a special methodology predicts the bankruptcy of an institution or speaks of its stable development.
Internal and external financial analysis
Financial analysis is part of the overall economic analysis enterprises and, accordingly, part of a complete economic audit. The full analysis is subdivided into on-farm managerial and external financial audit. This division is due to two practically established systems in accounting - managerial 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.
An internal analysis of the main financial indicators is carried out to obtain generalized information within the enterprise, determine the results of the last reporting period, identify free resources for reconstruction or re-equipment, etc. To obtain the results, all available indicators are used, which are also applicable in the study by external analysts.
External financial analysis is performed by independent auditors, outside analysts who do not have access to the firm's internal results and performance. Methods of external audit suggest some limitation of the information field. Regardless of the type of audit, its methods and methods are always the same. Common in external and internal analysis is the derivation, generalization and detailed study of financial ratios. These basic financial indicators of the company's activities provide answers to all questions regarding the work and prosperity of the institution.
Four main indicators of financial condition
The main requirement for the break-even functioning of an enterprise in the conditions of market relations is economic and other activities that ensure profitability and profitability. Economic activities are aimed at reimbursement of expenses by the income received, making a profit to meet the economic and social needs of the members of the team and the material interests of the owner. There are many indicators to characterize activities, in particular, they 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 identified:
- financial stability;
- liquidity;
- profitability;
- business activity.
Indicator of financial stability
This indicator characterizes the ratio of the organization's own funds and borrowed capital, in particular, how much borrowed funds per 1 ruble of money invested in tangible assets. If such an indicator in the calculation turns out to be more than 0.7, then the financial position of the company is unstable, the activity of the enterprise to some extent depends on the attraction of external borrowed funds.
Liquidity characteristic
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 assets and values of the company into cash capital and shows the degree of mobility of such a transformation. The liquidity of an enterprise is determined by two angles:
- the period of time required to turn current assets into money;
- the ability to sell assets at a specified price.
To identify the true indicator of liquidity, the enterprise takes into account the dynamics of the indicator, 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 a high degree solvency, since its capital consists of cash and short-term loans. The dynamics of the main financial indicators shows that the situation looks worse if the organization has working capital only in the form of a large amount of stored products in the form of current assets. To convert them into capital, certain time for sale and the presence of a buyer base.
The main financial indicators of the enterprise, which include liquidity, show the state of solvency. The firm's current assets should be sufficient to repay current short-term loans. In the best position, these values are approximately at the same level. If the enterprise has working capital much more in value than short-term loans, then this indicates an inefficient 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 fast current liquidity. It is expressed in the ability to repay short-term liabilities at the expense of the liquid part of the 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 in the range of 0.7-0.8. The presence of a sufficient number of liquid assets or net working capital in the enterprise attracts creditors and investors to invest in the development of the enterprise.
Profitability indicator
The main financial performance indicators of the organization include the value of profitability, which determines the effectiveness of the use of the funds of the company's owners and, in general, shows how profitable the work of the enterprise is. The value of profitability is the main criterion for determining the level of the exchange quotation. To calculate the indicator, the amount of net profit is divided by the amount of average profit from sales net assets firms for the selected period. The indicator reveals how much net profit each unit of the sold product brought.
The generated income ratio is used to compare the income of the target enterprise, compared 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 the profit received before taxes and due interest to the assets of the enterprise. As a result, information appears about how much profit was brought by each monetary unit invested for work in the company's assets.
Business activity indicator
It characterizes how much finance is obtained from the sale of each monetary unit of a certain type of assets and shows the turnover rate of financial and material resources organizations. For the calculation, the ratio of net profit for the selected period to the average cost of costs in material terms, money and short-term securities is taken.
There is no normative limit for this indicator, but the company's management forces strive to accelerate turnover. The constant use of third-party loans in economic activity indicates an insufficient flow of finance as a result of sales, which do not cover production costs. If the amount of turnover 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 a loss of profit. Low active funds lead to delays in execution production plan and loss of profitable commercial projects.
For an objective visual examination of indicators of economic activity, special tables are compiled that show the main financial indicators. The table contains the main characteristics of work for all parameters of financial analysis:
- inventory turnover ratio;
- the indicator of the turnover of accounts receivable of the company in the time period;
- value of return on assets;
- resource return indicator.
Inventory turnover ratio
Shows the ratio of revenue from the sale of goods to the amount in monetary terms stocks in the enterprise. The value characterizes the rate of sale of material and commodity resources classified as a warehouse. An increase in the coefficient indicates a strengthening financial position organizations. The positive dynamics of the indicator is especially important in the context 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 after the sale of goods. The ratio of receivables to the average daily sales proceeds is taken for calculation. 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 buyers. If the indicator is high, it means that the partner provides preferential working conditions, but this causes caution among subsequent investors and creditors. A small value of the 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 proceeds to the company's receivables. An increase in the ratio indicates an insignificant debt of debtors and high demand for products.
The value of return on assets
The main financial indicators of the enterprise are most fully complemented by the return on assets indicator, which characterizes the turnover rate of finances 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 costs in terms of fixed assets (machines, equipment, buildings) and a high volume of goods sold. Great importance return on assets indicates insignificant production costs, and low return on assets indicates inefficient use of assets.
Resource return rate
For the most complete understanding of how the main financial indicators of the organization's activities are formed, there is an equally important coefficient of return on resources. It shows the degree of efficiency of the company'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 depreciation calculation procedure adopted at the enterprise and reveals the degree of illiquid assets, which are disposed of in order to increase the coefficient.
Key financial indicators of LLC
The coefficients for managing sources of income show the structure of finance, 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 firm's ability to repay long-term loans and credits:
- the share of loans in the total amount of financial sources;
- ownership ratio;
- capitalization ratio;
- coverage ratio.
The main financial indicators are characterized by the amount of borrowed capital in the total mass of financial sources. The leverage ratio determines the specific amounts of asset acquisitions with borrowed money, which include long-term and short-term financial obligations of the firm.
The ownership ratio complements the main financial indicators of the enterprise with a characteristic of the share of equity spent on the acquisition of assets and fixed assets. The guarantee of obtaining loans and investing investor money in the project for the development and re-equipment of the 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 borrowings from various sources. To determine the proportion between own funds and borrowed finance, the inverse leverage ratio is used.
The indicator of security of interest payable or the coverage indicator characterizes the protection of all types of creditors from non-payment of the interest rate. This ratio is calculated as the ratio of the amount of profit before paying interest to the amount of money intended for paying interest. The indicator shows how much during the selected period the company gained money to pay borrowed interest.
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 to the overall activities of the company over the past period and in the future. The indicator is considered as the ratio of the initial accounting value of the share, the income received on it and the prevailing market price at the given time. If all other financial indicators are in the acceptable range, then the indicator of market activity will also be normal with a high market value of the share.
In conclusion, it should be noted that the financial analysis of the economic structure of the organization is important for all business entities, shareholders, short-term and long-term creditors, founders and management.
Financial ratios are relative indicators of the financial condition of the enterprise. They are calculated as ratios absolute indicators financial condition or their linear combinations. The analysis of financial ratios consists in comparing their values with base values, as well as in studying their dynamics for the reporting period and for a number of years. As basic values, the values of indicators of the given enterprise, averaged over the time series, relating to past favorable periods from the point of view of financial condition, are used. In addition, theoretically justified or expertly obtained values can be used as a basis for comparison. Such values actually serve as standards for financial ratios, although the methodology for calculating them depending on the industry has not been created, since at present the set of relative indicators used to assess the financial condition of an enterprise has not been established. For an accurate and complete characterization of the financial condition, it is necessary to a small amount of indicators. It is only important that each of these indicators reflect the most significant aspects of the financial condition.
The system of relative coefficients can be divided into a number of characteristic groups:
Indicators for assessing the profitability of the enterprise.
Indicators for assessing the effectiveness of management or profitability.
Indicators for assessing market stability.
Indicators for assessing the liquidity of balance sheet assets as the basis of solvency.
1.Indicators of profitability of the enterprise.
| Indicator | Attitude | Characteristic |
| 1. Overall profitability enterprises | gross (balance sheet) profit avg. asset value | Evaluation of the firm's ability to obtain the best results on the assets of the enterprise without taking into account the method of financing these assets and the effectiveness of the tax planning method. |
| 2. Net profitability of the enterprise | net profit avg. asset value | Evaluation of the firm's ability to obtain the best results on the assets of the enterprise without taking into account the method of financing these assets, but taking into account the method of tax planning |
| 3. Net return on equity | net profit average well-on own cap-la | Characterizes the relationship between profit and investment. Allows you to evaluate the profit on equity and compare its value with that which would be obtained with an alternative use of capital. |
2. Product profitability indicators. Evaluation of management efficiency.
return rate = net profit
share capital
net profit X volume of sales X assets
sales volume assets share capital
coefficient = marginal X turnover X financial
return on assets profit leverage
3. Evaluation of business activity (turnover ratios).
| Indicator | Attitude | Characteristic |
| 1.Total asset turnover | volume of sales average cost of all assets | Shows the efficiency with which the firm uses all assets to achieve main goal- product release. |
| 2. The return of the main production. Funds and intangibles. assets | volume of sales average cost of capital production. average (fixed assets) | Shows the efficiency with which the company uses fixed assets to achieve the main goal - output. |
| 3. Turnover of all working capital | volume of sales average cost of current assets | Shows the efficiency with which the company uses current (current) assets to achieve the main goal - output. |
| 4.Inventory turnover | cost of goods sold average cost of reserves | The average rate at which inventory turns into receivables as a result of a sale final product. Used as an indicator of inventory liquidity |
| 5. Accounts receivable turnover | volume of sales average debtor | The average rate of repayment of receivables for the period. It is used as an indicator of the liquidity of receivables. |
| 6. Own turnover. capital | volume of sales average well-per own cap-la |
4. Assessment of the liquidity of the company's assets.
To assess solvency, 3 relative liquidity indicators are used, which differ in the set of liquid funds considered as covering obligations. The normal limits on liquidity ratios given below are based on empirical data, expert assessments and mathematical modeling. They can serve as guidelines in the analysis of the financial condition of domestic enterprises.
| Indicator | Attitude | Characteristic |
| 1. Absolute liquidity ratio | money supply + Central Bank(creditor.debt+ +settlements++short-term.credits++ overdue.loans) | The absolute liquidity ratio characterizes the solvency of the enterprise on the date of the balance sheet. Normal. value K>=0.2-0.5 |
| 1. Critical liquidity ratio | money-CB + debit.debt-t- - calculations credits + settlements + short-term credits + overdue loans | The critical liquidity ratio characterizes the expected solvency of the enterprise for a period equal to the average duration of one debt turnover. Normal. value K>=1 |
| 3.Current liquidity ratio | all current assets Current responsibility | The current liquidity ratio characterizes the expected solvency of the enterprise for a period equal to the duration of the turnover of all working capital. Normal. value K>2 |
financial leverage
Use of borrowed funds with a fixed interest to increase the profits of ordinary shareholders.
Market value.
In preparing this work, materials from the site http://www.studentu.ru were used.
