Indicators of the financial condition of the enterprise. Analysis of the liquidity of the balance sheet and solvency of the enterprise. INTRODUCTION The market economy is associated with the need to improve the efficiency of production and the competitiveness of products and services based on a systematic analysis of the financial activities of the enterprise. But before investing in the development of an enterprise, it is necessary to analyze the financial condition of the enterprise to assess its investment attractiveness.
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Financial sustainability: by what indicators is it assessed? In the process of doing business, it is important to regularly assess the financial condition of the company. Such an analysis makes it possible to understand whether the organization will be able to carry out activities and service the obligations assumed. The analysis procedure is quite complex and multifaceted; it requires the calculation of a large number of .
Coefficients used for analysis
To assess the company in terms of its financial stability, various indicators play an important role, based on a comparison of the amount of funds owned by the organization with loans. The following coefficients are most often used for such an analysis:
Calculation of indicators for the new balance sheet 2016
Indicators that allow you to assess financial stability are calculated on the basis of the data presented in the accounting. Here are formulas that use strings from this form.
Autonomy coefficient \u003d SC / Total assets \u003d line in accounting.bal. 1300 / line in accounting 1600
abbreviation SC represents the amount of capital owned by the analyzed organization.
Financial leverage \u003d ZK / SK \u003d (line in accounting balance 1500 + line in accounting balance 1400) / line in balance. 1300
in the formula, the abbreviation ZK means funds that need to be returned to various kinds of creditors in the future. These are not only loans, but also debts to suppliers.
Security with own funds = (Equity funds - Non-current assets) / Current assets = (line in accounting balance 1300 - line in balance 1100) / line in accounting balance. 1200
Investment coverage = Equity working capital / Equity = (line in accounting balance 1300 - line in accounting balance 1100) / line in balance. 1300
Mobility of capital \u003d Value of working capital / SC \u003d (line in accounting balance 1300 + line in accounting balance 1400 - line in accounting balance 1100) / line in accounting balance 1100 1300
Mobility of working capital \u003d (Cash + Financial investments) / Working capital \u003d (line in accounting balance 1240 + line in accounting balance 1250) / line in accounting balance. 1200
Life on stock = Working capital / Inventory = (line in accounting balance 1300 + line in accounting balance 1400 - line in accounting balance 1100) / line in accounting balance 1100 1210
Short-term debt ratio \u003d Short-term debt / Total debt \u003d line in accounting balance. 1500 / (line in bal. 1400 + line in accounting bal. 1500)
Examples of indicator calculations
Suppose that the balance sheet of Vympel LLC for 2015 looks like this (images are clickable): 
Using the presented data, as well as the above formulas, we calculate the financial stability indicators that allow us to analyze:
- Autonomy coefficient = 389 / 2954 = 0.13
- Leverage = (2553 + 12) / 389 = 6.59
- Endowment with own funds = (389 - 1045) / 1909 = -0.34
- Investment coverage = (389 - 1045) / 389 = -1.69
- Capital mobility = (389 + 12 - 1045) / 389 = -1.66
- Mobility of working capital = (0+1123) / 1909 = 0.59
- life on stock = (389 + 12 - 1045) / 293 = -2.20
- Short-term debt ratio = 2553 / (12+2553) = 0.995
It is important to understand that the indicators presented are not usually considered for one year. When calculating them in dynamics (that is, annually), one can judge the effectiveness of the policy being pursued, develop new measures for financial recovery that are relevant at the moment.
Analysis of the financial condition on the example of OJSC "Avtovaz"
Using the data contained in the balance sheet, as of 2012 and 2013, financial stability ratios were calculated. The result of calculations is presented in the table.
| Coefficient | Value 12/31/2012 | Value 12/31/2013 | Coefficient change | Standard value |
|---|---|---|---|---|
| Autonomy coefficient | 0.23 | 0.17 | -0.06 | Over 0.4 |
| financial leverage | 3.4 | 4.77 | +1.37 | Not more than 1.5 |
| Security with own funds | -1.29 | -1.73 | -0.44 | Not less than 0.1 |
| Investment coverage | 0.76 | 0.7 | -0.06 | Not less than 0.7 |
| Capital mobility | -1.92 | -3.02 | -1.1 | Over 0.15 |
| Mobility of working capital | 0.17 | 0.07 | -0.1 | - |
| lifespan | -3.14 | -3.16 | -0.02 | More than 0.5 |
| Short-term debt ratio | 0.32 | 0.37 | +0.05 | - |
Based on the analysis of the results obtained during the calculations, the following can be noted:
- The autonomy coefficient is unsatisfactory, that is, the company is too dependent on its creditors.
- Too high value of financial leverage confirms the high degree of dependence of the enterprise.
- The negative value of the index of provision with own funds makes it possible to judge that the amount of equity capital is too low.
- The deterioration in the value of the investment coverage indicator indicates a decrease in the sustainability of funding sources.
- The capital mobility index is below zero. This means that the risk of insolvency is too high. At the same time, the value of the indicator deteriorates.
- Too low value of the stocks availability indicator allows to judge unsatisfactory financial stability, which decreases over time.
A selection of financial analysis reports
| Company name | Report date | Analysis Features | Download link |
|---|---|---|---|
| MTS OJSC | 06.06.2014 | Analysis of the financial condition was performed for the period from 01/01/2011 to 12/31/2013 (3 years). | Can be downloaded on this page. |
| JSC "Arsenal" | 01.01.2015 | A scoring of financial stability was carried out. | |
| JSC "Megafon" | 01.01.2012 | Analysis as of 31.12.2011 | Financial analysis in .pdf format |
| JSC "Prom-West" | 01.05.2014 | Analysis for 3 years. |
Thus, the indicators of the company's financial stability are calculated on the basis of the balance sheet data. The analysis of such coefficients allows not only to identify problems in the organization's activities, but also to develop advice on improving the enterprise.
Video lecture
A part of the course devoted to business diagnostics and the search for reserves to increase the return on it is given below in a video lecture on the analysis of the state of working capital of an enterprise.
Modern methods of financial assessment of an enterprise identify several dozen important coefficients for a comprehensive analysis of the financial and economic activities of an enterprise, including the study of the capital structure, asset dynamics and profitability rates. Let's talk about how to conduct a financial analysis of an enterprise with an example of calculating indicators.
In this article you will learn:
Stage I. Evaluate the effectiveness of the resources used
At the first stage, the focus should be on deciphering the assets and determining the resource needs of the enterprise. These are the most important indicators of business activity of the enterprise. The resulting values can be used both for comparing data from different periods for one enterprise, and by comparing with other enterprises in the industry.
Total turnover ratio
The first step in this direction is the calculation of the ratio of revenue to working capital, or the total turnover ratio (Koo).
Building a trend line according to this formula will clearly demonstrate the level and structure of the resources used in order to generate income. An increase in value will indicate a decrease in investment in working capital. The step period in data analysis should be associated with the standard operating cycle of the enterprise.
Turnover in days is calculated by dividing the number of days of the period by the coefficient.
Table 1. An example of calculating the total turnover ratio as part of the financial analysis of an enterprise
|
Indicator / Period |
October |
November |
December |
4th quarter |
|
Sales (excluding VAT) |
||||
|
Working capital |
||||
|
Koo (in days) |
Labor productivity
The diagnostics of material resources must be supplemented with a calculation of the efficiency of the use of human capital, determining productivity in the company (PT) using the following formula:
The productivity indicator will allow you to compare the quality of the workforce along with competing companies, and tact to determine the size of the marginal utility of additional staff.
table 2. An example of calculating labor productivity
|
Indicator / Period |
October |
November |
December |
4th quarter |
|
Sales (excluding VAT) |
||||
Profitability per employee is usually measured on an annual basis to avoid adjustments for seasonal fluctuations and peculiarities of the company's operating cycle.
Stage II. We control liquidity
After determining the overall dynamics of business activity, an in-depth study of the main drivers of operational efficiency will be carried out. The process is implemented through , receivables and payables.
Instant liquidity ratio
Following the given trend of monitoring the company (from general to particular), the next object of attention should be the quick (or instant) liquidity ratio (Kml). With its help, the margin of safety of the company is revealed, expressed in the ability to repay current liabilities in the absence of regular income from sales.
where DS - cash,
KVF - short-term financial investments,
KO - short-term liabilities.
Qualitative "liquid" data should be presented in the calculation. For example, financial investments and receivables should be recorded taking into account an allowance for impairment. Thus, the inclusion of significantly overdue debt will lead to an artificial improvement in the indicator. An indicator of "from 1" is considered acceptable.
Table 3. An example of calculating the instant liquidity ratio
|
Indicator / Period |
October |
November |
December |
4th quarter |
Repayment of accounts receivable
The dynamics of sales is always considered in relation to the proceeds of funds. A long period of collection of receivables signals the need to intervene in the procedure for working with clients in terms of paying off debts for delivered products. Accounts receivable turnover it is useful to compare with the regulated term of post-payment. The value of turnover (Odz), which does not significantly exceed the planned indicator, indicates stable high-quality work in this area.
Table 4. An example of calculating the turnover of accounts receivable in the analysis of the financial and economic activities of an enterprise
|
Indicator / Period |
October |
November |
December |
4th quarter |
|
Sales (with VAT) |
||||
|
Odz (in days) |
Repayment of accounts payable
The indicator of current debt should be assessed carefully, since the same value can signal both positive and negative trends. On the one hand, this is a demonstration of the management's ability to use commodity credit, on the other hand, a sufficient level of liquidity for the timely fulfillment of obligations to counterparties.
where Okz is the turnover of accounts payable.
Table 5. Accounts payable turnover calculation
|
Indicator / Period |
October |
November |
December |
4th quarter |
|
Purchases (with VAT) |
||||
|
Okz (in days) |
Useful Documents
Download accounts payable report
inventory turnover
Reserves in most cases have the largest share in and therefore require more attention. Overinvestment in inventory reduces the liquidity of working capital, a shortage of inventory leads to lower sales. Therefore, determining the optimal indicators of inventory turnover (Oz) is an important task of management.
Table 6. Inventory turnover calculation
|
Indicator / Period |
October |
November |
December |
4th quarter |
|
Cost price |
||||
|
Oz (in days) |
It is customary to study inventory operating cycles in the form of a trend of values for a particular enterprise; there are no generally accepted standards. However, it is possible to determine the characteristics of enterprises for which certain ranges of the indicator will be characteristic. For manufacturing companies and for businesses with high profitability, low turnover will be characteristic. The indicator will be significantly higher for trade organizations and firms with low operating margins.
Gross profit
The area of responsibility of gross profit is fixed at the cost of production or variable (conditionally variable) business expenses, the volume of which is determined primarily by the dynamics of sales. A change in the coefficient may be due to rising prices, adjustments in material consumption rates, changes in production technology or industrial cooperation.
Where Rvp - gross profit margin
Table 7. Gross Profit Margin Calculation Example
|
Indicator / Period |
October |
November |
December |
4th quarter |
|
Sales (excluding VAT) |
||||
|
Cost price |
||||
|
Gross profit |
||||
Operating profit
represents the main indicator for the management of the company, since it includes all regular costs, with the exception of operations outside the direct control of managers that are not typical of the company's standard commercial cycle (for example, the sale of a building). For an objective assessment of management's performance, interest income/expenses and income tax are usually also excluded from the indicator, but other income/expenses related to the company's activities are taken into account. In addition, it is an excellent indicator of the analysis of management costs in relation to business performance.
where Rop is the return on operating profit.
Table 8. An example of calculating the profitability of operating profit
|
Indicator / Period |
October |
November |
December |
4th quarter |
|
Gross profit |
||||
|
managerial |
||||
|
Operating profit |
||||
Net profit
If the previous two ratios are focused on operating activities, the net income indicator shows the results of the company from operating, financial and investment activities. Since all business factors are included in the PE, the analysis of cost rates for this indicator is difficult. However, it makes it possible to analyze the dynamics of free cash flow factors by an indirect method when adding adjustments to non-cash transactions and changes in working capital items to the calculation.
where Rnp is the net profit margin.
Table 9. An example of calculating the profitability of net profit
|
Indicator / Period |
October |
November |
December |
4th quarter |
|
Operating profit |
||||
|
Interest and Taxes |
||||
|
Net profit |
||||
Stage 4. We calculate indicators of financial stability
In today's business environment, it is rare to find firms that manage to do without borrowing. In this regard, there are a number of indicators that characterize certain signs of the financial stability of enterprises (the ratio of equity and debt capital, the coefficient of autonomy, flexibility and efficiency in the use of own funds). Most of them are interesting only in the mode of comparison with other enterprises in the industry. In the case of the analysis of a single enterprise, more practical indicators are required. One of these is the debt coverage ratio (CDR), the distinguishing features of which are an elementary calculation and the absence of significant interpretations of the results obtained. The indicator is based on the ratio of profit to the paid part of the debt.
Table 10. Debt Coverage Ratio Calculation
|
Indicator / Period |
October |
November |
December |
4th quarter |
|
Part of the debt |
||||
|
Interest |
||||
|
tax rate |
||||
A value below "1" means the company's inability to repay the next loan payment using operating profit and requires the search for reserves for the full payment of part of the debt. The main users of the debt coverage ratio are the company's creditors.
Stage 5. Determination of return on investment
The final stage of the analysis of the company's financial condition mainly affects the interests of business owners and investors - profitability ratios, the most popular of which is the calculation of return on assets and return on capital.
Return on assets
If in the analysis the object of interest is primarily current assets (stocks, receivables, cash), then for the purpose of profitability analysis, the composition and volume of non-current assets also become important. In this calculation, the owners/investors expect to see no threats in the company's need for additional cash investments.
Table 11. Calculation of return on assets
|
Indicator / Period |
October |
November |
December |
4th quarter |
|
Net profit |
||||
|
fixed assets |
||||
|
Other assets |
||||
It should be noted that the return on assets does not take into account the peculiarities of the company's capital structure, therefore it is of interest to the owners and management to a greater extent than to investors.
Return on equity
The key indicator for investors in evaluating an enterprise is the return on equity. Unlike return on assets, this ratio shows the return on investment in a business.
Table 12. Calculation of return on equity
|
Indicator / Period |
October |
November |
December |
4th quarter |
|
Net profit |
||||
It is important to remember that management can fictitiously overestimate this indicator by buying out part of the shares (business shares) through a loan. To identify this trick, you should pay attention to the dynamics of the company's borrowed funds.
When drawing up a business plan, it is necessary to analyze the indicators of the financial condition of the organization implementing the investment project.
If the project provides for the creation of a new organization, then this stage is missed at the initial stage, and is carried out when the enterprise reaches its design capacity or at the end of the project.
Analysis of the financial condition of the enterprise is carried out:
- before the start of the implementation of an investment project at an existing enterprise;
- upon completion of the project.
In the first case, we need to determine the financial health of the organization. After all, often it is precisely for the withdrawal of an organization from a crisis that an investment project is being developed. If the financial condition of the enterprise is unstable, then when implementing the project, it must be taken into account that additional funds may be required to finance the current activities of the company.
In the second case, an analysis is carried out in order to determine the effectiveness and efficiency of the project being implemented, if the main task was to bring the company out of the crisis. Or you just need to make sure that the new venture is financially stable and able to pay its obligations.
It is not difficult to calculate indicators of financial condition, but how to analyze them?
Indicators for analysis
In order to analyze the financial condition of the enterprise, we need to calculate the following indicators:
- solvency - determine the ability of your company to pay off its debts on time at the expense of revenue;
- business activity of an enterprise is a property of the financial condition of an enterprise, which is characterized by indicators of turnover of current assets;
- financial stability - the state of the enterprise's finances, which creates all the conditions and prerequisites for its solvency;
- liquidity - whether assets can be converted into money or be sold. The higher the degree of liquidity, the faster the company can find funds to cover its obligations.
For analysis, we need to know the dynamics of changes in indicators. Therefore, the calculation of indicators is carried out for three years or more and is summarized in a table, which also indicates the regulatory requirements for indicators.
The indicators are calculated on the basis of the data of the balance sheet and income statement. The methodology for calculating indicators is standard and is reflected in the guidelines for calculating indicators characterizing the financial condition of an enterprise.
Analysis example
When the indicators are calculated and summarized in a table, you can begin to analyze them. Let us give an example of a real analysis of the financial condition of an operating enterprise.
Table 1. Solvency indicators
The calculated indicator of total solvency in 2007 deteriorated compared to the previous year and amounts to 1.2 months, but this is less than in 2005 (1.75).
Compared to 2006, all solvency indicators worsened, except for the internal debt ratio, which remained equal to 0. This means that the company has no debt to the staff and founders to pay income.
The state of solvency indicators in general can be characterized as positive, since the standard values are< 3. Однако необходимо принять меры по увеличению выручки предприятия, снижение которой явилось основной причиной ухудшения показателей платежеспособности в 2007 году.
Table 2. Liquidity ratios
In 2007, the absolute liquidity ratio improved compared to 2006 figures. This happened due to an increase in cash in the structure of current assets.
The quick liquidity ratio also increased in 2007 relative to 2006, and is 0.18, which is less than the normative 0.5. And this may already predict some difficulties for the organization, if necessary, urgently pay off current obligations.
The current liquidity ratio in 2007 decreased compared to 2006 and is 1.9, which is close to the norm. The decrease in the indicator was the result of an increase in accounts payable.
To improve liquidity, the company needs to reduce the share of inventories in the structure of current assets and increase the share of cash and short-term financial investments, as well as reduce accounts payable.
Table 3. Indicators of financial stability
The ratio of borrowed and equity capital in 2007 was 0.3. This means that for 1 ruble of own funds there are 0.3 rubles of borrowed funds. This is in line with the recommended values. The increase in this indicator compared to 2006 is due to the increase in accounts payable in 2007.
The autonomy coefficient in dynamics for the analyzed period corresponds to the recommended values. Positive values of equity for the analyzed period indicate the presence of own working capital - the main condition for financial stability.
Analysis of the dynamics of the coefficient of maneuverability of equity capital indicates a decrease in the share of equity capital in financing current activities.
Zero values of the indicator of long-term attraction of borrowed funds indicate the independence of the enterprise from external investors.
The share of own capital in current assets was 0.47 in 2007, which is less than in 2006 (0.71) and corresponds to the level of 2005 (0.44). This is due to a decrease in retained earnings in 2007. The indicators correspond to the recommended values.
Table 4. Business activity indicators
The table shows the indicators of business activity of the enterprise in dynamics for three years.
The working capital ratio gives us information about the duration of the turnover period of current assets. This indicator worsened compared to 2006 and amounts to 2.31 months.
The turnover ratio of the amount of current assets shows the number of turnovers committed by working capital. This indicator decreased by 3 turnovers compared to 2006, but it is higher than in 2005 by 2 turnovers.
The length of the inventory turnover period makes it possible to estimate the rate of circulation of inventories. This indicator in 2007 also deteriorated compared to 2006 and amounted to 1.69 months, but this is better than in 2005 - 1.97 months.
The indicator of the duration of the period of receivables turnover characterizes the average period of settlement of customers with the enterprise. In 2007, the indicator slightly worsened compared to 2006 and amounted to 0.39 months, but this is four times faster than in 2005 - 1.69 months.
The speed of circulation of current assets that are involved in the production process determines the coefficient of working capital in production. The indicator in 2007 was 1.7 months, i.e. it decreased in comparison with 2006 and approached the level of 2005 in its value.
The working capital ratio in calculations in 2007 amounted to 0.61 months, which is 0.4 months worse than in 2006, but almost 3 times faster than in 2005.
Based on the analysis of indicators of business activity of the enterprise in dynamics for 2005-2007. it can be concluded that in 2006 there was an improvement in the values of the analyzed indicators compared to 2006, but in 2007 the values of the indicators deteriorated. This is due to various factors affecting the performance of the organization:
- an increase in receivables due to a decrease in the solvency of consumers,
- decline in sales of services rendered.
These and other factors influenced the increase in the duration of the turnover of working capital.
Output
Based on the analysis of indicators characterizing the financial condition of the organization, we can conclude that the enterprise is stable. The indicators correspond to the recommended values. But it is necessary to take measures to increase revenues and increase profits in the future.
More complete information about the financial condition of the enterprise can be obtained on the basis of an analysis of the financial results of the organization, which evaluates profitability, revenue, determines the factors affecting the results of the organization.
Financial analysis is a time-consuming process and requires the participation of specialists, so you should not neglect their services if you want to get objective information about the state of your enterprise and the results of a business project.
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