Analysis of the Operation and Financial Condition of the Enterprise

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Analysis of the Operation and Financial Condition of the EnterpriseTable 2.1 Groups interested in the financial analysis of an enterpriseGroup of Input by the group inObject ofInterests (claims)interest the enterprise activitiesanalysisFinancial resultsOwners Equity capital Dividendsfrom operationsInvestors, stockInterest on capital BorrowingDebt capitalholdersinvestedcapacityRemuneration fee forEnterprise Management skills,Entire enterprisethe work, optional fee inmanagement knowledge of businessoperations% of profit gainedEmployeesSuppliersCustomersGovernmentWorkProvision of continuousproduction processDistribution of thegoods/servicesPublic servicesSalaries, socialguaranteesPayment for the goodsdeliveredPrice for thegoods/servicesTax paymentsStatistical dataFinancial resultsfrom enterpriseoperationsEnterprisesolvencyFinancial resultsfrom enterpriseoperationsFinancial resultsfrom enterpriseoperationsFinancial analysis is necessary to a wide range of users as follows: internal users – company shareholders and management. Internal financialanalysis is being performed by the enterprise management with the objective ofplanning and control of the use of financial resources for attainment of theenterprise goals, to plan and to provide the availability of the necessary financialresources and to control the financial position of the enterprise; for external users – individuals or institutions that are not related to theenterprise, and are, however, interested in the analysis of the financial status ofthe company business activities, for example, banks.For the description of the groups of interest the following can be pointed out: Enterprise management – individuals to whom the owners have entrustedthe assets of the enterprise and their management. Full information on thefinancial position of an enterprise and the operating results: for the current period,for the previous periods. Enterprise management performs assessment of thefollowing information:1) enterprise operating results;2) the trends of changes in resources and the origin of resources;3) future development forecasts. Enterprise owners (stock owners or holders of the shares). They performassessment of the following information: what is the efficiency of performance ofthe executive functions. Their object of interest is as follows:30
Analysis of the Operation and Financial Condition of the Enterprise1) profitability of the enterprise and the potential amount of dividendsthey might receive for their capital invested;2) amount of profit that would provide dividends to them in the longtermfrom the profit account; enterprise owners use the following data inanalysis and assessment:- net income (retained earnings for the period reported);- dividends on preference shares;- dividend payout ratio;- reinvestment ratio;- dividend yield;- debt ratios. Transaction (business) partners:1) Suppliers, they are interested in the following: if an enterprise issolvent and if it is capable of making the payments in a timely mannerfor the goods supplied, and how big would be the risk of executing thesupply contracts;2) buyers (consumers) are interested in the following: if the orderwould be completed on time and in an appropriate quality; transactionpartners use the following data for the analysis:- liquidity ratios;- solvency ratio;- cost-effectiveness of sales;- turnover ratios. Creditors – physical or legal entities that have purchased debentures of theenterprise or issued loans for a pre-defined % rate. Creditors must be convincedthat the enterprise will be able to pay the interest and to repay the debt on the duedate. Creditors analyse and assess the following:1) profitability of enterprise;2) amount of profit before interest and tax payments;3) the cash flow statement. Government tax authority Provides economic benefit by controlling andauditing the tax payment procedures in the enterprise; Employees of the enterprise – they are interested in the following: whetherthe financial status of the enterprise is strong, whether the enterprise is growing(career opportunities, retaining the jobs and the amount of salary are dependenton this factor); Financial analysts and advisors – individuals providing financial services toothers; Securities brokers – they study the financial statements of enterprises andprovide consultation to their clients regarding the purchase of enterprisesecurities; Credit agencies – provide consultations to potential loan issuers aswell as the business partners on solvency and liquidity of the enterprise; Insurance companies are assessing the potential degree of risk uponprovision of insurance services, evaluate the property status, the trends ofsolvency indicators and the prospects of future development;31
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Analysis of the Operation and Financial Condition of the Enterprise

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