Business and Finance System

Posts Tagged ‘financial analysis’

Method

Financial analysis, often using financial ratios of the levels of solvency, profitability, business growth.

* Past performance for a specific period eg 5 years
* upcoming performance: using past performance figures and mathematical and statistical techniques, including the present value and future value. This calculation method is the cause of the financial analysis where the statistical errors of the past can cause low predictive future.
* Comparison of the performance is to compare performance among several companies in similar industries.

Financial analysis often judge a business by:

1. Profitability is the ability of the company to generate a profit and sustain growth for both the short and long term. Profitability of the company is usually seen from the company income statement (income statement), which shows the consolidated results of company performance.
2. Solvency is the ability of the company to meet all its obligations, as measured by a comparison of all liabilities of all assets and all liabilities to equity ratio
3. Liquidity is the ability of the company to meet its current liabilities are measured using the ratio of current assets to current liabilities.
4. Stability is the ability of the company in maintaining its business in the long term without having to suffer losses. To assess the stability of the company to use the income statement and balance sheet (balance sheet) the company and various financial and non financial indicators other.

Financial analysis used to assess business continuity, stability, profitability of a business, business atapun sub project.

Financial analysis performed by a professional who presents the report in the form of ratios that use the information as presented in the financial statements. This report is usually presented to top management of a business as a reference to taking a company policy.

Based on the results of this analysis, the management may decide a variety of management decisions such as:

* Continuing or not to continue the operations of a business or part of a business.
* Conduct the manufacture or purchase of raw materials in the production process
* To purchase or lease production machinery
* Doing the issuance of shares or negotiate to obtain bank loans in order to increase working capital of the company.
* Various other decisions that allow management to do the right choice of the various alternatives that exist in managing the company.

The financial analysis also uses the method of ratios. Ratio is a Saxon word derived from the Latin word ratio, reason and relationship. The ratio allows to know the solvency ratio, which indicates whether a company is solvent or not. The most important ratios used for financial analysis are:

1. Liquidity ratio, also called short-term solvency. Represents the relationship between the company’s assets and liabilities.
2. Acid ratio (acid test), represents a financial position in the very short term.
3. Defensive position, a ratio that indicates the time (in days) that the company would have to survive solely by applying the assets that the company has in the time when this ratio is calculated without taking into account funds from present or future sales.
4. Capital adequacy ratio or distance out of business, reflect the totality of the real assets owned by the company to meet the total debt you have.
5. EPS (Earning per share), shows the benefit for each action.
6. Policy Pay dividends or out, measures the percentage of profit that is distributed to shareholders.
7. PER (Price Earning Ratio) represents the number of times the benefit of an action is contained within your price.

When the analysis reflects economic and technical insolvency insolvency. If there are two enemies which by nature must be avoided at all costs a company are economic hardship and technical insolvency. The economic insolvency (bankruptcy) occurs when the liabilities of the company is greater than the assets. The technical insolvency (bankruptcy) occurs when even though the assets exceeds the liabilities, the company lacks sufficient resources to cope with the payment of its obligations, and that there is no correspondence between the cash flows of entry and monetary flows out. In both cases the first symptom of insolvency is beginning to be the layoffs of employees of the company.

Importance of financial analysis in business
The financial analysis is one of its main functions to anticipate and prevent conditions of insolvency, which otherwise, in addition to damaging the image of the company would bankrupt, which undoubtedly marked the beginning of the end of the company or talking in terms of employment contracts would be to sign the settlement of the same and to feed even with small doses on a company’s current economic crisis.

The study of economic and financial situation of the company is done through financial analysis. It reflects the economy and corporate profitability.

The economic-financial analysis of the company, or simply called financial analysis has as its main objective to carry out the analysis of the economic situation of the company and the measurement of return on investments.

And it is not enough that the company either from the standpoint of economic cost, but also need your financial structure is commensurate with its economic structure, not only in the present moment, in the future.

Records of financial analysis for the study of business
The financial analysis used, to carry out the study of economic and financial situation of enterprises, the following documents:

1. Balance sheet and profit and loss account. The balance sheet is a summary of the equity accounts of a company, which reflects the stance of an estate must include the proper separation of the company assets, which consists of the assets and rights and obligations, that make up person, with specific reference in it own funds or resources are there in the company.
2. Ratios method. The profit and loss account income quantifies and describes the company’s formation. In each of the items in the profit and loss account, in addition to being the figures for closing, should also include figures for the preceding year. The annual accounts for the year as close as the previous year. The fundamental concepts that make up the account are:

* To: All business expenses are recorded on the debit.
* Haber: All business income are recorded on the credit.
* Benefits: We reflect on the debit and the credit losses.
* Seat: Write a number in the account items.
* Results: The cash flow from management of the company.

financial analysis used to assess business continuity, stability, and profitability of a business, a sub business or project.

Financial analysis performed by a professional who presents the report in the form of ratios that use the information as presented in the financial statements. This report is usually presented to top management of a business as a reference to taking a company policy.

Based on the results of this analysis, the management may decide a variety of management decisions such as:

* Continuing or not to continue the operations of a business or part of a business.
* Conduct the manufacture or purchase of raw materials in the production process
* to purchase or lease production machinery
* Doing the issuance of shares or negotiate to obtain bank loans in order to increase working capital of the company.
* Various other decisions that allow management to do the right choice of the various alternatives that exist in managing the company.