Analysis of the Operation and Financial Condition of the Enterprise

Analysis of the Operation and Financial Condition of the Enterprisehappen. The shorter this period is the more liquid is each given element of assets. Liquiditymeasures is the capacity of an enterprise to execute any payments and debt settlementswith creditors on a due date and in a certain amount. Liquidity is the key issue in thefinancial performance of an enterprise. The objective of the enterprise performance is toensure a constant, sufficient amount of the means of payment.Liquidity can be discussed from two points of view: From the point of view of dissolution of an enterprise, i.e., it should be specified whatmeans of payment would be there at the disposal of an enterprise that could beallocated to meet the liabilities if an enterprise should undergo the process ofdissolution due to insolvency or insufficient profitability. In order to find an answer tothis question the following information is required: on revenues that an enterprise couldacquire in the case of potential dissolution from the disposal of its property; the amountof preferential claims; the amount of a secured loan. Such information cannot be foundin the financial statements. This means that in the process of the annual report analysisliquidity in this aspect is not discussed. Liquidity is discussed in this way when thecrediting arrangements are being established. From the aspect of the enterprise as a going concern; the probability that an enterprisecould become insolvent and could be forced into liquidation should be assessed.However, as the information found in the financial statements is based on the goingconcern principle, while analysing the balance sheet liquidity may be discussed onlyfrom this perspective. Information regarding liquidity is crucial as insolvency causesthe threat of winding up the operations of an enterprise. Businessmen and analysts areinterested in the future liquidity figures and not those of the past. The anticipatedliquidity figures cannot be found out merely according to the data of accountingreports, but the data from the finance planning must be extensively used. A profitableenterprise is usually also solvent as it has access to sufficient credit resources.There are several disadvantages of the liquidity measures: they are static – presented ratios are calculated based on the balance sheet datawhich describe the property status as of a certain date, therefore, to assess thechanges in the ratio it is recommended to view them in dynamics or compare withthe ratio level of other similar enterprises; they provide little information for the forecasting of future revenues and expenses,however, this is exactly the main current solvency task; incomplete accounting for enterprise liabilities (if there is a choice to present a loanin the balance sheet with or without the interest). Classification of assets depends on changes in the economic conditions. It isnot fixed, but varying (unstable deliveries and high inflation). Peculiarities of the areas of enterprise activities and the working capital.This ratio can be increased in two ways: By increasing the amount of individual items of current assets; By reducing the amount of short-term liabilities.68