The long-term development of any enterprise depends on the ability of management to timely identify the problems that have arisen and competently neutralize them. To achieve this goal, financial analytics is used, the purpose of which is to identify all the problematic elements in the company's management tools.
What is a financial analysis of an enterprise
Financial analysis should be understood as the integrated use of certain procedures and methods for an objective assessment of the state of an enterprise and its economic activities. The basis for the assessment is quantitative and qualitative accounting information. It is after its analysis that specific managerial decisions are made.
Financial analysis is focused on the study of the economic, technical and organizational level of the enterprise, as well as units related to it. The goals of financial analysis include the assessment of the financial and industrial economic activities of the company, including the diagnosis of bankruptcy.
Priorities of financial analysis
The financial and economic analysis of the state of the enterprise poses specific tasks, the fulfillment of which determines the accuracy of the analytic result. We are talking about opening reserves and production opportunities that have not been used, assessing the quality, establishing the impact of specific types of activities on the overall results of management and identifying the factors that caused deviations from the standards. In the process of analysis, the forecast of the expected results of the enterprise’s activity and the preparation of information necessary for making a management decision are also carried out.
It can be argued that the financial analysis of the enterprise plays the role of financial management both in the company itself and in the process of cooperation with partners, tax authorities, and the financial and credit system. At the same time, business activity, financial stability, profitability and profitability are recorded. The analysis itself can also be defined as an instrument of management, planning, as well as monitoring the activities of the company and its diagnostics.
It should be noted that the analysis of specific aspects of the enterprise is based on the analysis of a system of indicators, moreover, in a dynamic state. This is due to the fact that the financial and industrial-economic activities of the company, as well as its divisions, have interrelated indicators. For this reason, changes in specific indicators can affect the final financial technical and economic indicators the activities of the enterprise.
Financial and economic analysis of the enterprise: goals
Speaking about this form of analysis of the company, it is worth noting that it implies a combination of deduction and induction methods. In other words, during the study of individual indicators, the analyst must take into account general ones.
Another important principle is that when analyzing an enterprise, all types of business processes are studied taking into account their interdependence, interdependence and interconnection. As for the analysis of factors and causes, in this case, the analytics is based on an understanding of the following principle: each factor and reason should receive an objective assessment. Therefore, both causes and factors are initially studied, followed by their classification into groups: secondary, basic, non-essential, significant, poorly defined and determining.
The next step is to study the influence on the economic processes of determining, basic and essential factors. But undetectable and insignificant factors are studied only if necessary and only after the completion of the main part of the analysis. It is worth considering the fact that financial analysis does not always imply the study of all factors, since this is relevant only in some cases.
Moreover, if we talk about the exact objectives of the financial analysis of the enterprise, it makes sense to determine the following components of the assessment process:
- analysis of the ability to repay loans;
- monitoring the state of the enterprise at the time of the assessment;
- bankruptcy prevention;
- valuation of the company at its merger or sale;
- tracking the dynamics of financial condition;
- analysis of the company's ability to finance investment projects;
- forecasting the financial activities of the enterprise.
It is worth noting that in the process of studying the financial condition of an enterprise, those economic entities that are focused on obtaining extremely accurate and objective information about the activities of the enterprise can use the help of a financial analyst.
Such entities can be divided into two categories:
- External: creditors, auditors, government agencies, investors.
- Internal: shareholders, audit and liquidation commission, management and founders.
Another goal for which a financial analysis can be carried out, but not at the initiative of the enterprise, is to assess the investment potential and credit ability of the company. Such analytics, as a rule, is interesting to banks, for which it is important to verify the solvency and profitability of the enterprise. This is logical, since any potential investor is interested in obtaining information on the liquidity of the company and the degree of risk related to the loss of a deposit.
Features of internal and external analysis
Internal financial accounting and analysis is necessary in order to satisfy the needs of the enterprise itself. It can be focused both on identifying the degree of liquidity of the company, and on a thorough assessment of its results within the last reporting period. Such assessment methods are relevant when a financial analyst or company management intends to determine how realistic and relevant is the allocation of funds for the expansion of production that was planned, and what impact additional costs can have on it.
As for external financial analysis, it is carried out by analysts who are not related to the enterprise. They also do not have access to internal company information.
If an internal analysis is carried out, then problems with attracting information of any category will not arise, including one that is not accessible. In the case of external analysis, some limitations of assessment methods are initially taken into account due to the lack of information in full.
Types of financial analysis
The analytics, by which the state of the enterprise is assessed, can be divided into several key types according to the content of the management process:
- retrospective, or current analysis;
- prospective (preliminary, forecast);
- operational financial and economic analysis;
- analysis, which takes into account the results of a specific period of time.
Each of the species is used depending on the key task.
Methods of financial analysis
The current methods of financial analytics include the following areas:
- Vertical analysis. This is one of the types of assessment of the financial statements of the enterprise, in which the analysis is the proportion of balance sheet items and various types of liabilities and assets. With this technique, the allocation of resources is shown in fractions.
- Horizontal analysis. It is a matter of financial analytics of a company, in which a dynamic assessment of balance sheet items is performed. Both character and direction of the trend are evaluated.
- Coefficient analysis. With this type, financial, economic and production indicators are calculated on the basis of financial statements. Such financial and accounting analysis also examines loss statements, profit reports and other regulatory documents. The calculation of the coefficients makes it possible to evaluate the effectiveness and efficiency of various resources, activities and capital of the company, including.
- Trend analysis. With such an assessment, each reporting position is compared with specific previous periods, as a result, the movement trend of the enterprise is determined. Using the established trend, the formation of possible values of future indicators is carried out. In other words, a forward-looking analysis is being conducted.
- Factor analysis. In this case, an assessment of the influence of specific factors on the final results of the company’s activity is used. For research, stochastic and deterministic techniques are used.
- Comparative analysis. We are talking about on-farm analytics of summary indicators of workshops, departments, subsidiaries, etc. An on-farm financial analysis of the organization is also carried out in relation to the indicators of competing enterprises.
Coefficient analysis as the main tool of financial analytics
As a key method of financial analysis, you can determine the coefficient. This is explained by the fact that a quantitative assessment of the state of the company and the adoption of various managerial decisions aimed at changing specific indicators are made on the basis of financial and economic ratios. In this case, you can observe a direct relationship between those resources of the company that have been taken into account, and the efficiency of their operation, expressed through the values of financial and economic ratios and data in the balance sheet items.
This method of financial analysis involves the assessment of four relevant groups of economic indicators:
- Profitability ratios (profitability). Such data serve to reflect the profitability of the company’s capital when generating income through the use of various types of assets.
- Ratios of financial reliability (stability). In this case, the level of equity and borrowed capital of the company is demonstrated, and the structure of the company's capital is displayed.
- Solvency ratios (liquidity). Reflect the capabilities and ability of the organization to timely short-term and long-term debt obligations.
- Ratios of turnover (business activity). Using this information, you can determine the number of company assets for a specific reporting period and the intensity of their turnover, including.
The method of financial analysis, in which the coefficients of the company are taken as the basis of calculations, is considered important for the reason that it makes it possible to timely identify crisis phenomena in the company and take current measures to stabilize the situation.
This type of analysis is part of strategic management organization.
Examples of financial analytics
In order to understand the essence of assessing the state of an organization, it is necessary to study an example of financial analysis. Suppose, for the entire time of the period undergoing research, the margin was stable, but there was a certain decrease.
During the study period, an increase in the rate of turnover of goods by 35 days was revealed. This indicates the presence of surplus stocks and an increase in the number of stocks of goods. At the same time, the optimal value of goods turnover for hardware stores is 80-90 days.
As for the receivables, the company does not have it - all retail trade of the company is carried out on the basis of payment upon delivery. Accounts receivable are wrapped up within 4-7 days, which can be defined as a positive indicator.
At the same time, the operational cycle increased by 35 days within the framework of the period covered by the analysis. Obviously, it (the cycle) corresponds to an increase in the duration of trade. Based on the increase in the period of turnover, the term of the financial cycle has also increased.
An example of this kind of financial analysis of an enterprise defines an activity as stable enough to allow overstocking of a warehouse. In order to optimize the process as much as possible, a review of the procurement policy is necessary in order to reduce the period of turnover.
How to analyze the activities of the bank
The financial analysis of the bank is focused on ensuring quality management by developing key parameters of its activities. We are talking about indicators such as profitability of operations, capital and payment turnover, structure assets and liabilities the efficiency of the bank’s departments, the risks of the portfolio of financial resources and intra-bank pricing.
In order for the study of the state of the bank to be successful, some conditions must be met: the information used for analysis must be reliable, accurate, timely and complete. If the data provided does not correspond to reality, the applied methods of financial analysis will not be able to lead to objective conclusions. This means that the impact of some problems will be underestimated, which may lead to an aggravation of the situation.
The reliability of the information is assessed during the inspection process and during documentary supervision.
Bank state research methods
Various aspects of the bank’s activities are evaluated through the use of scientific and methodological tools. It is with their help that it is possible to develop an optimal solution to specific tasks of a managerial nature.
There are popular methods of financial analysis of a bank:
- The dynamic balance sheet equation. This technique involves accounting for gains and losses. Through such management, a factorial financial assessment of the state of the bank and the fact of how profitable its activities are is carried out.
- Modified balance sheet management (liabilities equal assets). In this case, financial analysis involves a quick assessment of the effectiveness of the bank's liability management.
- The main management of the balance sheet (assets equal to the sum of equity and paid liabilities). The key principle of this valuation technique is the efficient management and ownership of all bank assets.
- Equity balance equation (bank capital equals assets minus paid liabilities). This type of equation is relevant when it is necessary to obtain a final estimate of how effective was the management of available capital in the framework of the increment of equity. This technique is also used to determine and operate reserves of increased profitability.
Thus, we can conclude that the financial analysis of the enterprise, an example of which was given above, is a necessary measure to determine the status and profitability of the company. Without such analytics, the effectiveness of the enterprise's activity can significantly decrease, and at the same time, rehabilitation measures in case of untimely assessment may be irrelevant.
Analysis of the financial condition of the enterprise:
