Analysis of the Operation and Financial Condition of the Enterprise

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Analysis of the Operation and Financial Condition of the EnterpriseQuantitative and qualitative measures for achievement of the goals of enterpriseowners - this part discusses quantitative measures to measure the success of theenterprise - e.g. market share, earnings before interest and taxes, customersatisfation, etc. This section provides questionnaires for audience to apply to theirown situations;Role of analysis in the activities of an enterprise – stresses financial analysis as thelink between financial accounts and decision making.Techniques and methods of analysis - discusses horizontal, vertical analysis and theuse of financial ratios.3. Applying Financial Statements for Enterprise AnalysisThis section emphasizes the role of financial reports as the basis for financial analysis.Balance sheet and P/L statement are emphasized in particular.This section covers: Role of financial statements in financial analysis and their founding principles - thispart covers such concepts as: the accruals principle and the going concern principle.The mainqualitative requirements to financial statements - reliability, comparability, etc. are alsodiscussed;Description of the main balance sheet items - this section focuses on how toconstruct the balance sheet. The emphasis here is on flexibility for the purposes ofanalysis. Questions are posed to the course users.Example: Analysis of the Balance SheetQuestions to be considered: What is the reason for changes in total assets? What is the structure of assets? Has the asset structure changed? What is the composition of long-term investments? Are there any unused or inefficiently used assets? What is the proportion between equity and debt?In this way, target audience can immediately think of their own companies and situationsas material is being delivered to them.This section also covers: Description of the main P/L statement items - as in discussion on the balance sheetaudience is encouraged to consider questions regarding profit, turnover, revenues andcosts of their company. Role of financial analysis in financial planning - this part distinguishes by time threekinds of financial planning: Day-to-day financial estimates; Medium-term financial planning; Long-term financial planning;4. Applying Financial Analysis Measures6
Analysis of the Operation and Financial Condition of the EnterpriseThis section covers: Description of financial ratios - considers the measures used in calculating ratios(e.g. assets, turnover, equity) and proposes comparisons with:o industry average figures;o same ratios for the previous years;o figures of competitor enterprises; Liquidity measures - two viewpoints on liquidity – viewing enterprise as about tobe liquidated or as going concern; Describes disadvantages of liquidity measures; Quick ratio; Absolute liquidity ratio.o Solvency measures - this part consider measures such as ownership ratio, debt ratio,interest cover, etc.;o Activity measures - multiple measures are considered in this part e.g. current assetturnover, stock turnover. The distinction between operating cycle and cash cycle isdiscussed;o Profitability measures - various definitions of profitability.o Trading profitability (return from sales), profitability of investing (return oninvestment) and financial profitability (return on capital employed) are considered.4. Financial Performance RatiosPrimary ratio - Return on net assetsSecondary ratios:o Profit margin;o Asset turnover;Third level ratios -o Measures for control over revenues and costso gross profit / amount of sales;o variable costs / amount of sales ...o Use of assets: fixed assets / amount of sales.Financial performance measureso Liquidity Current ratio;o Quick ratio;o Stock, debtors’,o Creditors’ turnovero Collection periods, etc.o Solvency, Interest cover.Investment ratioso Return on shareholders’ equity profit after tax and interest / total equity;o Earnings per share profit after interest and tax / number of shares;o Price / earnings ratio;o Investment ratios are more common in practice for larger;o companies, where users of financial analysis could be large investment institutionse.g. pension funds.7
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Analysis of the Operation and Financial Condition of the Enterprise

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