Analysis of the Operation and Financial Condition of the Enterprise

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Analysis of the Operation and Financial Condition of the EnterpriseFigure 2.1 Role of analysis in the activities of an enterprisePerformance analysis is at the forefront of decision-making and action; it helps tosubstantiate the basis for it and guarantees the effectiveness. Through the analysis thesearch for the options of use of the most economical resources, the possibilities forreduction of the prime cost of output as well as the increase in profit and profitability isimplemented. The economy of the enterprise is made stronger; the efficiency of productionrises as a result.Business performance analysis is therefore a significant element in the operationalmanagement system. The role of analysis in operational management is growing everyyear, and this can be explained with the fact that, due to the increase in the prices and thedeficit of raw materials, increasing of both internal and external competition, the necessityfor constant improvement of operating efficiency exists. The transition to a free marketeconomy is likewise contributing to the self-sustainability of an enterprises and anincreased responsibility of the managers for the decisions taken.Planning comprises the processing and assessment of the information acquired,definition of the objectives, development and adoption of decisions in order to select themost suitable tools for effective provision of further activities under certain circumstances.However, a pre-condition of a successful planning is the establishment of a correctforecast of the financial position. In the situation of developing market relations, whenoften there is complete information missing on the demand for the services, when it isimpossible to predict not only the activities of the competitors, but also those of businesspartners, when it is required to take decisions ensuring not only development, but alsosurvival of an enterprise, management abilities and knowledge of the forecasting methodsis of utmost importance.Development of the enterprise plans is basically the decision-taking ensuringoperational development within the planning period. Besides, the enterprise performanceresults for the previous years are taken into account, the trends of economic developmentof the enterprise are studied, and additional operational reserves are being discovered.Business performance analysis of an enterprise is an instrument of forecasting ofthe future performance results by reviewing of past trends. The ability to predict the courseof activities, to see now the signs of the future - this is one of the functions of analysis.Correctly made forecasts must enable a higher level of planning and facilitate decisionmaking.Business performance analysis of an enterprise does not only serve as thesubstantiation of an economic plan, but it is also the means of control over its execution.Planning begins and ends with the analysis of enterprise performance results. The controlfunction over the fulfilment of plans is not weakened, on the contrary – it is being madestronger in market economy conditions, because in the circumstances of uncertainty andchange of the external environment it is necessary to systematically adjust the enterprisedata. The continuously changing external environment requires an ongoing process ofplanning.Just like accounting is subdivided into financial and managerial accounting, alsothe enterprise business performance analysis can be split in two following groups:38
Analysis of the Operation and Financial Condition of the Enterprise external analysis usually comprising the financial accounting statements; internal analysis, which comprises the management accounting reports.The specific features of the external financial analysis are as follows:- many subjects of analysis and users of information on enterprise performance;- diversity of interests of the subjects and objects of analysis;- orientation of analysis solely on reports of public enterprises;- maximum publicity of the results.The main content of external financial analysis that is performed by the enterprisepartners according to the publicly available financial reports is made up of the following: analysis of the absolute profit measures; distribution of profit and raising of other sources of capital; analysis of the relative measures of profitability; analysis of the enterprise financial status, financial stability, balance sheetliquidity data, enterprise solvency; analysis of efficiency of use of the equity and debt capital; economic diagnostics of the enterprise financial status; position of the enterprise resources for the reporting period; financial stability and solvency status of the enterprise at the reporting date; rate of capital use and profitability of enterprise operations in the period reported; changes in the financial status of the enterprise in the reporting period and itsdynamics in the preceding years; enterprise relationship with the shareholders.External financial analysis is carried out by using published financial reports with thepurpose of identifying the options for investing assets in a project with the highest return,to control the estimated tax amounts, to check the financial stability of a business partner.External financial analysis is solely derived from the public accounting reports. Limitedinformation is used in this type of analysis which does not provide with a comprehensiveinsight about the operations of an enterprise.Persons and institutions both related directly and indirectly to the enterprise canbe interested in external analysis of an enterprise: enterprise co-owners and shareholders (interested in prospects for development,raising of profitability and profit); enterprise creditors (degree of risk); potential investors (profitability of investment); suppliers (financial status of an enterprise); inspectors and auditors; government tax authority; trade unions; press; competitors etc.Internal financial analysis is being performed by the enterprise management with theobjective of planning and control of the use of financial resources for attainment of theenterprise goals, to plan and to provide the availability of the necessary financial resources39
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Analysis of the Operation and Financial Condition of the Enterprise

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