Analysis of financial indicators. The main financial ratios for the analysis of the enterprise's activities Analysis of financial indicators and ratios of the enterprise

Modern requirements for the results of the analysis of the financial condition of an enterprise from a wide range of external users force us to look for new sources of financial data in addition to accounting, which for a long time was sufficient to form the information base of financial analysis.

Information for financial analysis

The most complete definition of the concept of financial analysis is given in the Financial and Credit Encyclopedic Dictionary (edited by A.G. Gryaznova): Financial analysis is a set of methods for determining the property and financial position of an economic entity in the past period, as well as its capabilities for the near and long term perspective.

Information for performing an analysis of the financial condition of an enterprise, according to published textbooks, manuals and guidelines, is the official accounting (financial) statements of the organization. Only in very rare cases did any author dare to recommend primary accounting data and specifically indicate the sources and methods of calculation, their application in the analysis.

The purpose of financial analysis is to determine the most effective ways to achieve the profitability of the enterprise, the main tasks are to analyze the profitability and assess the risks of the company.

Allows the analyst to understand the competitive position of the organization at the current time. Public reporting of commercial organizations contains a lot of numbers, the ability to read this information allows analysts to know how efficiently and effectively their company and competing companies are working.

The ratios allow you to see the relationship between sales profit and expenses, between the main assets and liabilities. There are many types of financial ratios, they are usually used to analyze the five main aspects of a company: liquidity, ratio of own and borrowed funds, asset turnover, profitability and market value.

Figure 1. Structure of financial indicators

The analysis of coefficients and indicators is a tool that provides an idea of the financial condition of the organization, its competitive advantages and development prospects.

1. Performance Analysis. This group of indicators allows you to analyze the change in productivity in terms of net profit, use of capital and monitor the level of costs. Financial ratios allow you to analyze the financial liquidity and stability of an enterprise through the effective use of a system of assets and liabilities.

2. Evaluation of market business trends. By analyzing the dynamics of financial indicators and ratios over a period of several years, it is possible to study the effectiveness of trends in the context of the existing business strategy.

3. Analysis of alternative business strategies. By changing the indicators of the coefficients in the business plan, it is possible to analyze alternative options for the development of the company.

4. H monitoring the progress of the company. Having chosen the optimal business strategy, the company's managers, continuing to study and analyze the main current ratios, can see a deviation from the planned indicators of the development strategy being implemented.

Ratio analysis is the study of the relationship between two or more indicators that characterize the financial activities of an organization. Analysts can see a more complete picture of the performance results in dynamics over several years, and additionally by comparing the company's performance with industry averages.

It is worth noting that the system of financial indicators is not a crystal ball in which you can see everything that was and will be. It is simply a convenient way to summarize a large amount of financial data and compare the performance of various enterprises. By themselves, financial ratios help the company's management focus on the strengths and weaknesses of the company's activities, correctly formulate questions that these ratios can rarely answer.

It is important to understand that financial analysis does not end with the calculation of financial indicators and ratios, it only begins when the analyst has completed their calculation.

The real utility of the calculated coefficients is determined by the tasks set. First of all, the ratios provide an opportunity to see changes in the financial position or results of production activities, help to determine the trends and structure of the planned changes; which helps management to see the threats and opportunities inherent in this particular enterprise.

The company's financial reports are about the company not only for analysts, but also for the company's management and a wide range of external users. It is important for users of information on financial ratios to know the main characteristics of the main financial statements and the concepts of indicator analysis for effective ratio analysis. However, when conducting financial analysis, it is important to understand: the main thing is not the calculation of indicators, but the ability to interpret the results obtained.

When analyzing financial performance, it should always be borne in mind that performance is evaluated on the basis of data from past periods, and on this basis, extrapolation of the future development of the company may turn out to be incorrect.

System of financial indicators and ratios

The total number of financial ratios that can be used to analyze the activities of a commercial organization is about two hundred. As a rule, only a small number of financial indicators are used and, accordingly, the main conclusions that can be drawn from them.

When conducting an analysis, it is customary to divide financial indicators into groups, most often into groups that reflect the interests of certain stakeholders. The main groups of such persons include: owners, management of the enterprise, creditors. At the same time, it is important to understand that the division is conditional and indicators for each group can be used by different stakeholders.

Analysis of financial indicators involves at least three stages:

Stage 1. Selection of the necessary indicators to highlight a specific aspect of the financial situation of the organization, for example, solvency.

Stage 2. Development of financial indicators that quantitatively express the analyzed side of the organization's financial position, for example, the overall solvency ratio.

Stage 3. Evaluation of numerical values of indicators (coefficients).

To control economic entities and create benchmarks for making management decisions, such values are normalized. The specificity of these norms is established as a result of the addition of many factors, including administrative interests, accumulated experience, common sense, etc. Their purpose is to serve as objective evaluation criteria, as well as a kind of beacons in establishing and maintaining the course of economic development in a given direction. However, it seems that effective guidelines should be more flexible, taking into account relevant differences in regions, types of activities of economic entities, etc.

As an option, it is possible to streamline and analyze financial indicators by groups that characterize the main properties of the company's activities: liquidity and solvency; management efficiency; profitability (profitability) of activities.

The division of financial indicators into groups that characterize the features of the enterprise's activities is shown in the following figure.

Figure 2. The structure of the company's financial indicators

Let's consider in more detail the groups of financial indicators.

Operational cost indicators: The analysis of operating costs allows us to consider the relative dynamics of the shares of various types of costs in the structure of the total costs of the enterprise and is an addition to the operational analysis. These indicators allow you to find out the reason for the change in the profitability of the company.

Indicators of effective asset management: These indicators make it possible to determine how effectively the company's management manages the assets entrusted to it by the owners of the company. The balance can be used to judge the nature of the assets used by the company. It is important to remember that these indicators are very approximate, because. In the balance sheets of most companies, a variety of assets acquired at different times are indicated at historical cost. Consequently, the book value of such assets often has nothing to do with their market value, this condition is further exacerbated by inflation and an increase in the value of such assets.

Another distortion of the current situation may be related to the diversification of activities, when specific activities require the attraction of a certain amount of assets in order to obtain a relatively equal amount of profit. Therefore, when analyzing, it is desirable to strive for the separation of financial indicators for certain types of company activities or products.

Liquidity indicators: These indicators allow you to assess the degree of solvency of the company on short-term debts. The essence of these indicators is to compare the value of the current debt of the company and its current assets, which will ensure the repayment of these debts.

Indicators of profitability (profitability): Allow to evaluate the effectiveness of the company's management of its assets. The efficiency of work is determined by the ratio of net profit, determined in various ways, with the amount of assets used to obtain this profit. This group of indicators is formed depending on the focus of the study of effectiveness. Following the goals of the analysis, the components of the indicator are formed: the amount of profit (net, operating, profit before tax) and the amount of the asset or capital that form this profit.

Capital structure indicators: Using these indicators, it is possible to analyze the degree of risk of bankruptcy of the company in connection with the use of borrowed financial resources. With an increase in the share of borrowed capital, the risk of bankruptcy increases, because. the company's liabilities increase. This group of coefficients is primarily of interest to existing and potential creditors of the company. The management and owners evaluate the company as a continuously operating business entity, creditors have a twofold approach. On the one hand, creditors are interested in financing the activities of a successfully operating company, the development of which will meet expectations; on the other hand, lenders estimate how strong the claim for repayment of the debt will be if the company experiences significant difficulties in repaying a long-term loan.

A separate group is formed by financial indicators that characterize the company's ability to service debt using funds received from current operations.

The positive or negative impact of financial leverage increases in proportion to the amount of borrowed capital used by the company. The risk of the creditor increases together with the growth of the risk of the owners.

Debt service indicators: Financial analysis is based on balance sheet data, which is an accounting form that reflects the financial condition of the company at a certain point in time. Whichever of the ratios that describe the capital structure is considered, the analysis of the share of debt, in fact, remains statistical and does not take into account the dynamics of the company's operating activities and changes in its economic value. Therefore, debt service indicators do not give a complete picture of the company's solvency, but only show the company's ability to pay interest and the amount of the principal debt within the agreed time frame.

Market indicators: These figures are among the most interesting for company owners and potential investors. In a joint-stock company, the owner - the shareholder - is interested in the profitability of the company. This refers to the profit received due to the efforts of the company's management, on the funds invested by the owners. Owners are interested in the impact of the results of the company's activities on the market value of their shares, especially those freely traded on the market. They are interested in the distribution of their profits: how much of it is reinvested in the company, and how much is paid to them as dividends.

Financial analysis is carried out by companies not only to assess the current financial condition of the company, it also allows you to predict its further development. At the same time, analysts need to carefully consider the list of indicators that will be used for strategic planning.

A company's sustainable growth analysis is a dynamic analytical framework that combines financial analysis with strategic management to explain the critical relationships between strategic planning variables and financial variables, and to test the alignment of corporate growth objectives with financial policy. This analysis allows you to determine whether the company's existing opportunities for financial growth, determine how the company's financial policy will affect the future and analyze the strengths and weaknesses of the company's competitive strategies.

In this article, we will consider the components of the analysis of financial indicators.

Any measures for the implementation of strategic programs have their cost. A necessary part of the planning and implementation of the strategy is the calculation of the necessary and sufficient financial resources that the company must invest.

Information for financial analysis

The most complete definition of the concept of financial analysis is given in the “Financial and Credit Encyclopedic Dictionary” (edited by A.G. Gryaznova, M.: “Finance and Statistics”, 2004): “ Financial analysis - a set of methods for determining the property and financial position of an economic entity in the past period, as well as its capabilities in the short and long term". The purpose of financial analysis is to determine the most effective ways to achieve the profitability of the company, the main tasks are to analyze the profitability and assess the risks of the enterprise.

Analysis of financial indicators and ratios allows the manager to understand the competitive position of the company at the current time. Published reports and company accounts contain a lot of numbers, the ability to read this information allows analysts to know how efficiently and effectively their company and competing companies are working.

The ratios allow you to see the relationship between sales profit and expenses, between the main assets and liabilities. There are many types of ratios, and they are usually used to analyze the five main aspects of a company's performance: liquidity, equity ratio, asset turnover, profitability, and market value.

Rice. 1. The structure of the company's financial indicators

The analysis of financial ratios and indicators is an excellent tool that provides an idea of the company's financial condition and competitive advantages and prospects for its development.

1. Performance Analysis. The ratios allow you to analyze the change in the performance of the company in terms of net profit, use of capital and control the level of costs. Financial ratios allow you to analyze the financial liquidity and stability of an enterprise through the effective use of a system of assets and liabilities.

2. Evaluation of market business trends. By analyzing the dynamics of financial indicators and ratios over a period of several years, it is possible to study the effectiveness of trends in the context of the existing business strategy.

3. Analysis of alternative business strategies. By changing the indicators of the coefficients in the business plan, it is possible to analyze alternative options for the development of the company.

4. Monitoring the progress of the company. Having chosen the optimal business strategy, the company's managers, continuing to study and analyze the main current ratios, can see a deviation from the planned indicators of the development strategy being implemented.

Ratio analysis is the art of relating two or more measures of a company's financial performance. Analysts can see a more complete picture of the performance results in dynamics over several years, and additionally by comparing the company's performance with industry averages.

It is worth noting that the system of financial indicators is not a crystal ball in which you can see everything that was and will be. It's just a convenient way to summarize a large amount of financial data and compare the performance of different companies. By themselves, financial ratios help the company's management focus on the strengths and weaknesses of the company's activities, correctly formulate questions that these ratios can rarely answer. It is important to understand that financial analysis does not end with the calculation of financial indicators and ratios, it only begins when the analyst has completed their calculation.

The company's financial statements are a source of information about the company not only for analysts, but also for the company's management and a wide range of stakeholders. It is important for users of information on financial ratios to know the main characteristics of the main financial statements and the concepts of indicator analysis for effective ratio analysis. However, when conducting financial analysis, it is important to understand that the main thing is not the calculation of indicators, but the ability to interpret the results.

When analyzing financial performance, it should always be borne in mind that the assessment of performance is based on data from past periods, and on this basis, extrapolation of the future development of the company may turn out to be incorrect. Financial analysis should be directed to the future.

Concepts behind financial performance analysis

Financial analysis is used in the construction of budgets, to identify the causes of deviations of actual indicators from planned and correction of plans, as well as in the calculation of individual projects. The main tools used are horizontal (dynamics of indicators) and vertical (structural analysis of items) analysis of management accounting reporting documents, as well as calculation of coefficients. Such an analysis is carried out for all major budgets: BDDS, BDR, balance sheet, sales, purchases, inventory budgets.

The main features of financial analysis are the following:

1. The vast majority of financial indicators are in the nature of relative values, which makes it possible to compare enterprises of various scales of activity.

2. When conducting financial analysis, it is important to apply a comparison factor:

compare the performance of the company in a trend for different periods of time;
compare the performance of a given company with the average performance of the industry or with similar performance of enterprises within the industry.

3. For financial analysis, it is important to have a complete financial description of the company for selected time periods (usually years). If the analyst has data for only one period, then there should be data on the balance sheet of the enterprise at the beginning and end of the period, as well as a profit statement for the period under consideration. It is important to remember that the number of balances for analysis should be one more than the number of profit reports.

Accounting management is an important element in the analysis of financial ratios and indicators. The basic accounting equation expressing the interdependence of assets, liabilities and property rights is called the balance sheet:

ASSETS = LIABILITIES + EQUITY

Assets usually classified into three categories:

1. Current assets include cash and other assets that must be converted to cash within one year (for example, publicly traded securities; receivables; notes receivable; working capital and advances).

2. Land property, fixed assets and equipment (fixed capital) include assets that have a relatively long service life. These funds are usually not intended for resale and are used in the production or sale of other goods and services.

3. Long-term assets include the company's investments in securities, such as stocks and bonds, as well as intangible assets, including: patents, expenses on monopoly rights and privileges, copyrights.

Liabilities usually divided into two groups:

1. Short-term liabilities include amounts of accounts payable that should be paid within one year; for example, accrued liabilities and bills payable.

2. Long-term obligations are the rights of creditors, which do not have to be realized within one year. This category includes obligations under a bonded loan, long-term bank loans, and mortgages.

Equity These are the rights of the owners of the enterprise. From an accounting point of view, this is the balance of the amount after deducting liabilities from assets. This balance is increased by any profit and reduced by any losses of the company.

Measures commonly considered by analysts include the income statement, balance sheet, measures of changes in financial position, and measures of changes in equity.

A company's income statement, also referred to as a profit and loss statement or income statement, summarizes the results of a company's options activity for a specific reporting period. Net income is calculated using the periodic accounting method used to calculate profits and costs. It is usually considered the most important financial indicator. The report shows whether the percentage of earnings on the company's shares for the reporting period decreased or increased after the distribution of dividends or after the conclusion of other transactions with the owners. The income statement helps owners assess the amount, timing and uncertainty of future cash flows.

The balance sheet and the income statement are the main sources of indicators used by companies. A balance sheet is a statement showing what a company owns (assets) and owes (liabilities and equity) as of a specific date. Some analysts refer to the balance sheet as a "picture of a company's financial health" at a particular point in time.

System of financial indicators and ratios

The total number of financial ratios that can be used to analyze the company's activities is about two hundred. Usually, only a small number of basic coefficients and indicators are used and, accordingly, the main conclusions that can be drawn from them. For the purpose of a more streamlined consideration and analysis, financial indicators are usually divided into groups, most often into groups that reflect the interests of certain stakeholders (stakeholders). The main groups of stakeholders include: owners, management of the enterprise, creditors. At the same time, it is important to understand that the division is conditional and indicators for each group can be used by different stakeholders.

As an option, it is possible to streamline and analyze financial indicators by groups that characterize the main properties of the company's activities: liquidity and solvency; the effectiveness of the company's management; profitability (profitability) of activity.

The division of financial indicators into groups that characterize the features of the enterprise's activities is shown in the following diagram.

Rice. 2. The structure of the company's financial indicators

Let's consider in more detail the groups of financial indicators.

Operating costs indicators:

The analysis of operating costs allows us to consider the relative dynamics of the shares of various types of costs in the structure of the total costs of the enterprise and is an addition to the operational analysis. These indicators allow you to find out the reason for the change in the profitability of the company.

Indicators of effective asset management:

These indicators make it possible to determine how effectively the company's management manages the assets entrusted to it by the company's owners. The balance can be used to judge the nature of the assets used by the company. It is important to remember that these indicators are very approximate, because. In the balance sheets of most companies, a variety of assets acquired at different times are indicated at historical cost. Consequently, the book value of such assets often has nothing to do with their market value, this condition is further exacerbated by inflation and an increase in the value of such assets.

Another distortion of the current situation may be related to the diversification of the company's activities, when specific activities require the involvement of a certain amount of assets in order to obtain a relatively equal amount of profit. Therefore, when analyzing, it is desirable to strive for the separation of financial indicators for certain types of company activities or products.

Liquidity indicators:

These indicators allow you to assess the degree of solvency of the company on short-term debts. The essence of these indicators is to compare the value of the current debt of the company and its current assets, which will ensure the repayment of these debts.

Indicators of profitability (profitability):

They allow to evaluate the effectiveness of the use by the company's management of its assets. The efficiency of work is determined by the ratio of net profit, determined in various ways, with the amount of assets used to obtain this profit. This group of indicators is formed depending on the focus of the study of effectiveness. Following the goals of the analysis, the components of the indicator are formed: the amount of profit (net, operating, profit before tax) and the amount of the asset or capital that form this profit.

Capital structure indicators:

Using these indicators, it is possible to analyze the degree of risk of bankruptcy of the company in connection with the use of borrowed financial resources. With an increase in the share of borrowed capital, the risk of bankruptcy increases, because. the company's liabilities increase. This group of coefficients is primarily of interest to existing and potential creditors of the company. The management and owners evaluate the company as a continuously operating business entity, creditors have a twofold approach. On the one hand, creditors are interested in financing the activities of a successfully operating company, the development of which will meet expectations; on the other hand, lenders estimate how strong the claim for repayment of the debt will be if the company experiences significant difficulties in repaying a long-term loan.

A separate group is formed by financial indicators that characterize the company's ability to service debt using funds received from current operations.

Debt service indicators:

Financial analysis is based on balance sheet data, which is an accounting form that reflects the financial condition of the company at a certain point in time. Whichever coefficient characterizing the capital structure is considered, the analysis of the share of debt capital, in fact, remains statistical and does not take into account the dynamics of the company's operating activities and changes in its economic value. Therefore, debt service indicators do not give a complete picture of the company's solvency, but only show the company's ability to pay interest and the amount of the principal debt within the agreed time frame.

Market indicators:

These indicators are among the most interesting for company owners and potential investors. In a joint-stock company, the owner - the shareholder - is interested in the profitability of the company. This refers to the profit received due to the efforts of the company's management, on the funds invested by the owners. Owners are interested in the impact of the company's performance on the market value of their shares, especially those freely traded on the market. They are interested in the distribution of their profits: how much of it is reinvested in the company, and how much is paid to them as dividends.

The main analytical goal of analyzing financial ratios and indicators is to acquire the skills of making managerial decisions and understanding the effectiveness of its work.

The method of financial ratios is the calculation of the ratios of financial statements data, the determination of the relationship of indicators. When conducting an analysis, the following factors should be taken into account: the effectiveness of the applied planning methods, the reliability of financial statements, the use of various accounting methods (accounting policies), the level of diversification of the activities of other enterprises, the static nature of the applied coefficients.

Expressing relative values, financial ratios make it possible to evaluate indicators in dynamics and compare the performance of an enterprise with the industry and parameters of competing organizations, as well as compare them with recommended values. The use of financial ratios makes it possible to quickly assess the financial condition of the enterprise.

Financial ratios can be systematized according to certain criteria:

- proceeding from the meters put in a basis: cost and natural;
- depending on which side of phenomena and operations they measure: quantitative and qualitative;
- based on the use of individual indicators or their ratios: volumetric and specific.

Specific indicators include financial ratios, which are widely used in analytical work.

The composition of the indicators of each group includes several main generally accepted parameters and many additional ones, determined based on the goals of the analysis.

The most widespread are four groups of financial indicators:

Indicators of financial stability.

Solvency and liquidity meters.

Indicators of profitability (profitability).

Parameters of business activity and production efficiency.

The condition for the financial stability of an enterprise is an acceptable value of solvency and liquidity indicators. They express its ability to repay short-term liabilities with quickly realizable assets. The financial balance of the organization is ensured by a sufficiently high level of its solvency. The low value of solvency and liquidity ratios characterizes the situation of cash shortage to maintain normal current (operational) activities. On the contrary, high values of these parameters indicate an irrational investment in current assets. Therefore, the study of the solvency and liquidity of the balance sheet of the enterprise is always given the closest attention.

Profitability indicators allow you to obtain a generalized assessment of the effectiveness of the use of assets (property) and equity capital of the enterprise.

The parameters of business activity are also designed to assess the effectiveness of the use of assets and equity, but from the standpoint of their turnover. The volume of assets should be optimal, but sufficient to fulfill the production program of the enterprise. If it experiences a shortage of resources, then it must take care of the sources of financing for their replenishment. Such sources can be both own and borrowed funds. When assets are redundant, the enterprise incurs additional costs for their maintenance, which reduces their profitability.

The group of indicators characterizing the business activity of an enterprise includes parameters expressing the value and profitability of its shares on the stock market. Market activity ratios relate the market price of a share to its par value and earnings per share. They allow the management and owners of the enterprise to evaluate the attitude of investors to its current and future activities.

Table 1.1. individual indicators recommended for analytical work are presented. These indicators can be used by external users of financial statements, such as investors, shareholders and creditors.

Name of indicator	What characterizes	Calculation method	Interpretation of the indicator
Coefficients characterizing the financial stability of the enterprise
1. Coefficient of financial independence (Kfn)	The share of equity capital in the balance sheet	To fn = SK / WB, where SK is equity; WB -- balance currency
2. Debt ratio (Kz) or financial dependence	The ratio between borrowed and own funds	K s = ZK / CK, where ZK -- borrowed capital; SC - equity
3. Funding ratio (Kfin)	The ratio between own and borrowed funds
4. The coefficient of provision with own working capital (Ko)	The share of own working capital (net working capital) in current assets	K o = SOS / OA, where SOS -- own working capital; About A - current assets
5. Agility factor	The share of own working capital in equity
6. Permanent asset ratio (Kpa)	The share of equity allocated to cover the non-mobile part of the property	K pa \u003d BOA / CK, where BOA -- non-current assets	The indicator is individual for each enterprise. It can be compared to a company that has absolute financial stability.
7. Coefficient of financial tension (Kf ex)	The share of borrowed funds in the borrower's balance sheet currency	K f ex = ZK / WB, where ZK is borrowed capital, WB is the balance sheet currency	Not more than 0.5 (50%). Exceeding the upper limit indicates a large dependence of the enterprise on external sources of financing.
8. Long-term borrowing ratio (Kdp zs)	The share of long-term borrowed sources in the total amount of equity and borrowed capital	K dp zs \u003d DZI / SK + ZK, where DZI -- long-term borrowed sources; SK equity; ZK-- borrowed capital
9. Ratio of mobile and immobilized assets (Kc)	How many current assets account for each ruble of non-current assets	K c \u003d OAIBOA where OA is current assets; BOA -- non-current (immobilized) assets	Individual for each enterprise. The higher the value of the indicator, the more funds are advanced into current (mobile) assets
10. Coefficient of industrial property (Kipn)	The share of industrial property in the assets of the enterprise	K ipn = BOA + 3/A, where BOA -- non-current assets; 3 - stocks; A - the total amount of assets (property)	Kipn > 0.5. If the indicator drops below 0.5, it is necessary to attract borrowed funds to replenish the property
Financial ratios used to assess liquidity and solvency of the enterprise
1. Absolute (quick) liquidity ratio (Kal,)	How much of the short-term debt the company can repay in the near future (as of the balance sheet date)	K al \u003d (DS + KFV / KO), where DS - cash; KFV -- short-term financial investments;
2. Current (adjusted) liquidity ratio (Ktl)	Predictable payment capabilities of the enterprise in the conditions of timely settlements with debtors	K tl \u003d DS + KFV + DZ / KO, where DZ is receivables
3. Liquidity ratio when raising funds (CLMS)	The degree of dependence of the solvency of the enterprise on inventories from the position of mobilizing funds to repay short-term obligations	K lms \u003d 3 / KO, where 3 -- inventories
4. Total liquidity ratio (Col)	Sufficiency of working capital of the enterprise to cover its short-term obligations. It also characterizes the margin of financial strength due to the excess of current assets over short-term liabilities	K ol \u003d (DS + KFV + + DZ + 3) / KO
5. Own solvency ratio (Ksp)	Characterizes the share of net working capital in short-term liabilities, i.e., the ability of the enterprise to compensate for its short-term liabilities at the expense of net current assets	Ksp \u003d CHOK / KO, where CHOK is net working capital; KO -- short-term liabilities	The indicator is individual for each enterprise and depends on the specifics of its production and commercial activities.

An enterprise is considered solvent if the following condition is met:

where OA -- current assets (section II of the balance sheet); TO -- short-term liabilities (section V of the balance sheet).

A more particular case of solvency: if own working capital covers the most urgent obligations (accounts payable):

where SOS - own working capital (OA - KO); CO - the most urgent obligations (items from section V of the balance sheet).

In practice, the solvency of the enterprise is expressed through the liquidity of the balance sheet.

Thus, in order to conduct a financial analysis and to identify the insolvency of Master Yug LLC, we can use the indicators given in this chapter and compare them with the normative value.

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 exclude the effect of inflation, since almost all coefficients are the result of dividing one reporting item into another, i.e., not the absolute values appearing in the reporting, but their ratios are studied.

Despite the convenience and relative ease of use of this method, financial ratios do not always make it possible to unambiguously determine the state of affairs of the company. As a rule, a strong difference of a certain coefficient from the industry average value or from the value of this coefficient for a competitor indicates that there is an issue that needs more detailed analysis, but does not indicate that the enterprise definitely 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 the features of the economic activity of the enterprise, which do not lead to financial difficulties.

Various financial ratios reflect certain aspects of the activity and financial condition of the enterprise. 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 company's capital structure. 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 versatile assessment of the company's activities as a whole, according to the final result;
* coefficients of market activity. 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, payroll and tax charges, 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 dividing the proceeds from sales for the reporting period (year, quarter, month) by the average value of stocks for the period. It shows how many times during the reporting period the stocks were transformed into finished products, which, in turn, were sold, and stocks were re-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 online trading or in the service sector, where turnover is usually higher than in production;
* 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 collection period of receivables by buyers (in days) or the average time to receive payment (Average Collection Period, ACP). To calculate it, the average receivables for the period are divided by the average sales revenue for one day of the period (calculated as the 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 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 interest payable, TIE (Time-Interest-Earned). The ratio 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 common coefficient that characterizes the efficiency of the company's use of the 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;
* coefficient of income generation, 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 per ruble of assets an enterprise 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 coefficients of the market activity of the enterprise allow assessing the position of the company in the securities market and the attitude of shareholders to the company's activities:

* stock quote 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.

One simple tool to focus on the most important areas of an enterprise and compare the performance of different enterprises is financial ratio analysis, which uses the calculation of financial ratios as a starting point for interpreting the financial results of an enterprise.

The analysis of financial ratios is used to control the economic activities of the enterprise and to identify the strengths and weaknesses of the enterprise relative to competitors, as well as when planning the activities of the enterprise for the future.

The calculation of financial ratios focuses mainly on three key business areas: profitability (managing the buying and selling process); use of resources (asset management); investor income.

Financial indicators such as resource efficiency and profitability show the opportunities that provide the efficiency of the enterprise's economic activity, that is, the highest return with the lowest possible investment and a reasonable degree of risk.

The asset turnover ratio shows how much sales fall on each ruble invested by the investor in the reporting period under consideration and is calculated using the following formula:

Asset turnover ratio = Sales volume /Total net assets,

where, total net assets \u003d non-current assets + current assets - short-term liabilities.

The asset turnover ratio can be influenced by changing either the volume of sales (through marketing activities) or the amount of invested capital (by changing the structure of the company's short-term capital or by changing investments in non-current assets).

Liquidity. This is an indicator of the company's ability to repay short-term liabilities at the expense of current assets. Liquidity is analyzed using two financial ratios: the current ratio and the quick ratio.

Current liquidity ratio is calculated according to the following formula: Current liquidity ratio = Current assets / Short-term liabilities.

The current liquidity ratio shows the ratio between the value of the enterprise's current assets, which are liquid in the sense that they can be converted into cash in the next financial year, and the debt, which is due in the same financial year.

The optimal amount of liquidity is determined by the economic activity of the enterprise. For most industrial enterprises, the current ratio is kept at a relatively high level, since the stocks mainly consist of raw materials, semi-finished products and finished products. Therefore, if necessary, they are difficult to quickly implement at full cost.

Quick liquidity ratio is calculated according to the following formula: Quick liquidity ratio = (Current assets - Stocks) / Short-term liabilities.

The urgent liquidity ratio shows what part of the debt can be repaid in a short time at the expense of current assets, if the reserves cannot be converted into cash.

Accounts receivable turn into cash in a relatively short period of time. Therefore, most likely, all receivables will be repaid. But the passage of inventory through the production process, sale and transformation into accounts receivable can take a lot of time. And enterprising buyers will not miss the opportunity to purchase goods at reduced prices, taking advantage of the desperate situation of the seller.

The acceptable value of the quick liquidity ratio is in the range from 0.8 to 1.2.

Financial institutions that provide lending services have difficulty assessing the liquidity of inventories and feel more confident when dealing only with receivables and cash. Therefore, the quick ratio is more popular than the current ratio.

The profitability of an enterprise is the ratio of actual profit to sales volume. Using the profit and loss account, calculate two indicators of the profitability of the enterprise: net margin and gross margin.

The Net Margin is calculated using the following formula: Net Margin = (Net Profit/Sales) x 100%.

The net margin shows what share of sales remains with the company in the form of net profit after covering the cost of goods sold and all expenses of the enterprise. This indicator can serve as an indicator of the acceptable level of profitability, at which the enterprise does not yet suffer losses. The net margin can be influenced by the entity's pricing policy (gross margin and markup) and cost control.

Gross Margin is calculated using the following formula: Gross Margin = (Gross Profit/Sales) x 100%.

There is an inverse relationship between gross margin and inventory turnover: the lower the inventory turnover, the higher the gross margin; the higher the inventory turnover, the lower the gross margin.

Producers must secure a higher gross margin than retail because their product spends more time in the manufacturing process. The gross margin is determined by the pricing policy.

Differences in the accounting policies of enterprises, the principle of accounting at cost, the lack of acceptable comparable data, differences in the operating conditions of enterprises, changes in the purchasing power of money, intra-annual fluctuations in accounting information - all this imposes restrictions on the ability to analyze coefficients. When analyzing the coefficients, the qualitative characteristics of goods and services, labor force, labor relations are not taken into account.

It is impossible to assess the entire set of considered coefficients until a detailed analysis or comparison of these indicators with the previous results of the enterprise and with standard indicators for the industry as a whole is carried out. Therefore, one should be careful in interpreting financial indicators and not make hasty conclusions without full information about the enterprise and the industry as a whole.

Although financial ratios are subject to the influence of conventions arising from the application of accounting calculations or valuation methods, but taken together, these indicators can form the basis for further analysis of the enterprise.

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