Analysis of the Operation and Financial Condition of the Enterprise

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Analysis of the Operation and Financial Condition of the Enterpriseand to control the financial position of the enterprise. In performance of the internalfinancial analysis more detailed additional information is being used apart from thefinancial statements - on technical preparation works for production, costs and standards,stock position, accounts receivable and payable, for example. It is possible to include amore detailed analysis on account of management accounting information in the model ofenterprise internal analysis and to perform a complex assessment of enterprise performanceefficiency.Internal analysis is confidential information carried out to develop a certainprogramme for the enterprise, for example, marketing, operational programmes. Thisinformation is available for the executive team only and therefore the decisions necessaryfor establishment of further actions may be adopted based on this information. Internalanalysis of an enterprise is performed according to the following measures: gaining of profit from sales of goods; prime cost of all enterprise goods manufactured and sold; prime cost of individual types of goods; price and cost variances from the planned values and the reasons involved; individual liability for the expenses in respect of the budget.In performance of the internal financial analysis more detailed additional information isbeing used apart from the financial statements - on technical preparation works forproduction, costs and standards, stock position, accounts receivable and payable, forexample.It is possible to include a more detailed analysis on account of management accountinginformation in the model of enterprise internal (management) analysis and to perform acomplex assessment of enterprise performance efficiency. The issues of financial andmanagement analysis are mutually interrelated in substantiation of business plans, incontrol of their fulfilment, in development of a marketing scheme, i.e., a market orientedmanagement system for production and sales of goods.Internal analysis is a detailed economic analysis with the objective of providing theenterprise managers with the analytical information required for adoption of managementdecisions.2.5. Techniques and methods of analysisDepending on the objective of analysis proper techniques or methods forperformance of analysis should be selected.Key element of each scientific method in the scientific personnel involved.Presently it is practically impossible to distinguish between any techniques and methodsand to establish that they belong to this branch of science and not to another - currentlythere is a merger of different scientific instruments taking place. In financial analysis,the same as in management, various methods can be applied which have been initiallydeveloped within the framework of one or the other branch of the economic science.Different methods and techniques of classification may be highlighted in thefinancial performance analysis of any subject of economy. All types of classification arebased on different specific features. One of the most informative features is thebreakdown of techniques and methods by their degree of formation, i.e., whether it is40
Analysis of the Operation and Financial Condition of the Enterprisepossible to describe to some extent the particular method with the help of anyformalised procedures, for example, mathematical. Following this logics, all analyticalmethods may be subdivided into formalised and non-formalised methods.Non-formalised methods are based on the description of logical procedureswithout the use of strict analytical correlations. An important role in the application ofthese methods is played by the experience and intuition of the analyst. Formalisedmethods (sometimes they are also formulated as mathematical methods) are based onpre-set strict correlations and rules.In the majority of cases in the enterprise financial performance analysis as well asin the express analysis non-formalised methods are applied first of all, and, besides, theclassical methods of economic analysis are applied.As it has been stated there are several objectives in the analysis of financial status: identification of financial status; disclosing of the changes in the financial status in certain time and place; discovering of the main factors for changes of the financial status; forecast of the most important trends of the financial status.Financial analysis is performed with the help of different types of models. The modelsallow for creation of structures and identification of the connection between the basicmeasures.Three main types of models can be mentioned:1) Descriptive models are models of a descriptive type and these are the basicmodels for assessment of the financial position of an enterprise. Descriptive modelscomprise the following: establishment of the reporting balance sheet system,preparation of financial statements of different analytical types, the vertical and thehorizontal analysis of the financial statements, the system of analytical ratios,disclosures to the statements. All these models are based on the use of accountinginformation.Several methods can be applied for business performance analysis:Interpretation of statements – absolute figures included in the statements are being studied.This gives an introduction into the enterprise property status, its short-term or long-terminvestments in assets, the sources of formation of equity and the debt capital, as well as therelationship with its creditors and debtors. By using the statement interpretation method anumber of limitations should be taken into account:- the balance sheet reflects the status of the enterprise assets and liabilities on acertain date, but does not provide the answer for why such a status has beenestablished;- interpretation of the balance sheet data is possible only by linking them with theturnover or the sales amount data; any conclusions, regarding how large or small theamounts of each of the balance sheet items are, can be made only after comparingthem to the respective amounts of turnover;- it is possible to calculate different ratios from the balance sheet data, but in order tomake their assessment, the comparable industry average data are required.Interpretation of financial statements has to be performed in a certain order:41
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