Analysis of the Operation and Financial Condition of the Enterprise

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Analysis of the Operation and Financial Condition of the EnterpriseTable5.13.Estimation of the gross profit margin by quarter for the period from31/03/2XX8 to 31/12/2XX9 (in CU)March,2XX8June,2XX8Sept.,2XX8Dec.,2XX8March,2XX9June,2XX9Sept.,2XX9Dec.,2XX9Net turnoverby quarter 150 046 196 977 376 845 350 815 264 220 290 353 313 088 319 197Gross profitor loss byquarter 32 055 -53 726 135 160 -25 276 49 560 -147 925 -3 082 111 596Gross profitmargin byquarter, inpercent 21,4 -27,3 35,9 -7,2 18,8 -50,9 -1,0 35,0Having summarised full information regarding the profitability of the enterpriseconclusion may be drawn that the minimum level of profitability has not been set until2XX9, at which the enterprise would implement its projects, because until then for eachproject a bid has been prepared for the building contractor. Building contractors collectsthe bids from several sub-contractors and afterwards it announces the lowest price to twoto three potential sub-contractors, the idea behind being that should any of these subcontractorsoffer an even lower price the one offering the lowest price would get thecontract. Thus the potential sub-contractors are lowering each other’s prices. As a resultthe contractor is getting the lowest possible bid, while sub-contractors are getting projectswith low profitability rates. Now there has been the minimum profitability level set for theenterprise which recently causes the profitability of the enterprise to improve.From the point of view of business competition as the main driving force makeseach enterprise to supersede the other one, to acquire the recognition of consumers and toachieve faster implementation of the project offered and possibly at a higher price.The management of the enterprise needs to work more on the marketing issues andthe quality of the works to be performed, to establish permanent relationship with thebuilding contractors as a result of which it is possible to win the projects and to raise thelevel of profitability of the enterprise.By assessing the financial position of Enterprise N the following can be concluded: the main concern in the enterprise is the profitability level of projects forimplementation that has been particularly low in 2XX9; due to low profitability levels liquidity of the enterprise is low starting withthe second quarter of 2XX9; speaking about the turnover of assets and the working capital it can bementioned that the turnover is improving. If the enterprise is able to raiseadditional resources for ensuring regular liquidity levels, then the turnoverof total assets and current assets will be also increased;104
Analysis of the Operation and Financial Condition of the Enterprisethe turnover of accounts payable is too low, because creditors have to waitmore than 140 days for the payment of one invoice on average, which interms of months is almost five months and is yet too much;by assessing the liquidity of the enterprise it should be noted that in 2XX9the enterprise liquidity in the second quarter is low, and according to alltheories on liquidity the enterprise should have gone bankrupt already. Thisis why the enterprise must start urgently looking for additional resourcesfor it to be able to improve its liquidity and the overall activity as a result;further on the enterprise must pay larger attention to the implementation ofthe planned profitability level of its projects. If the projects are beingimplemented at their planned level of profitability and if the enterprisefinds resources for the improvement of its profit, then it is possible for theenterprise to operate at a constant profit already in 2X10. For theimprovement of profitability and the financial position of the enterprise it isrequired to implement projects with small periods of execution, forexample, 2 months, because in this way the turnover of the enterprisecurrent assets will be accelerated.5.5. Working capital management in Enterprise N5.5.1. Description of working capitalCurrent assets of the enterprise and their amount are displayed in Table 5.14 ‘Currentassets of Enterprise N from 31/12/2XX7 to 31/12/2XX9’.Table 5.14.Current assets of Enterprise N from 31/12/2XX7 to 31/12/2XX9Dec., March June, Sept., Dec., March June, Sept., Dec.,2XX7 , 2XX8 2XX8 2XX8 2XX8 , 2XX9 2XX9 2XX9 2XX9Stock 203 347 1491 653 1036 666 3057 4416 1005Work in progress 45293 70244 82132 138182 85539 172087 146674 79623 108428Accountsreceivable 89011 88518 101614 154316 201877 280583 213256 188399 163233Advances forpurchases 7680 10632 9678 12886 5985 8603 6378 7263 6967Short-term loans 30000 32000 25500 18000 11500 11500 11500 13000Prepaid expenses 1761 1869 1932 2228 2479 2743 3016 3686 2866Cash andsecurities 23858 8947 12931 10014 3385 572 2581 1262 8916Total currentassets 167806 210557 241778 343779 318301 476754 386462 296149 304415It can be noticed from Table 5.14 that there has been a tendency of growing for thecurrent assets before the end of March, 2XX9, while the amount of current assets has beenreduced starting with the second quarter of 2XX9. In order to have a full picture about105
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