Analysis of the Operation and Financial Condition of the Enterprise

Analysis of the Operation and Financial Condition of the EnterpriseA budget summarises all revenues and expenses of an enterprise and shows the amountof the expected profit.The cash flow forecast plays a very important role. This has to be projected afterthe budget is prepared as the amount of turnover that the enterprise plans to achieve isalready available. The amount of turnover is necessary for planning of the incoming cashflow. The asset turnover ratios can be of assistance here. As it is well known, cash andturnover is not the same thing. Therefore, when projecting cash inflows it is highlyimportant to most accurately plan the collection of accounts receivable. The policy forcollection of debtors’ debts in an enterprise is not insignificant here, however, as theenterprise upon planning of cash flows often takes historical data for the previous year intoaccount, the debtor's turnover ratio has to be estimated for an enterprise - this would allowdetermine the period closing balance figure of accounts receivable. After the figures forthe period opening and closing debtors balance and the turnover have become known cashinflows from sales for the period can be estimated by mathematical methods. One shouldalso bear in mind that the balances of the accounts receivable include VAT amounts, whilethe turnover doesn’t and therefore certain adjustments need to be made in calculations ofthe cash inflows.While planning the outflow of cash all enterprise creditors are split into suppliers directlyselling their products, goods necessary for the provision of the enterprise businessactivities, and into suppliers delivering their services required to maintain its businessactivities. Therefore it becomes more understandable which creditors should be paid by theenterprise in the current or in another month. For example, the situation with the creditorsproviding services becomes clear - this outflow of cash can be planned based on historicaldata from the previous year, as the services received each month are the same, and,therefore, an enterprise can expect that it has to pay monthly for rent, electricity, transport,advertisement, loan interest as well as tax, salaries etc. The situation with the suppliers ofgoods is more complex. If the range of goods sold by an enterprise is very wide and it isnot possible to project, who and how much needs to be paid, because it depends on howwell and which brands of goods will sell better, then the turnover ratios can assist again.The first thing that needs to be done, when planning payments to suppliers ofgoods, is to plan the balances to be purchased and the amounts that would be available forsale. According to the budget prepared an enterprise already knows how much has beenplanned for production profitability in the enterprise and, therefore, it is also known, whatis the amount of the prime cost from the turnover. The prime cost of goods is exactly thevalue of goods sold in every particular month. With the prime cost of goods sold knownand taking the historical data for the previous year as the basis, the stock turnover ratio isalso available; it can be estimated how much stock will remain at the end of the monthwhich will be the reference point in planning the cash flow fro the following month.Therefore, if the monthly opening stock balances, the amounts to be sold and the amountsremaining are available, it can be mathematically estimated what will be the amount ofgoods to be purchased. Stock data are required to plan the movement of the accountspayable to the goods suppliers. There is an assumption made that creditors need to be paidas much as it is sold. This presupposes that the figure of the cost of goods sold is available,and, if we accept this assumption, then it is only necessary to multiply this cost of goodswith the rate of VAT, and the amount of payment to creditors for each particular month is62