Analysis of the Operation and Financial Condition of the Enterprise

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Analysis of the Operation and Financial Condition of the Enterprise3. Replenishment of cash from inner resources was performed mainly based on thedepreciation deductions – it was impossible to use the annually decreasing profitfor this purpose.4. The total amount of investment in fixed assets for two years – Ls 568 thous. (326thous. + 242 thous.) is almost equal to the amount of deductions for depreciation -Ls 562 thous. for this period (Ls 256 thous. + Ls 306 thous.). Such an outcomeillustrates that the investments in this area are practically not increasing and givesrise to a question – whether the company policy in the area of investment is stillremaining competitive.5. The company is neither attempting to increase its share capital nor raise any longtermloans, even in spite of the fact that net investment in fixed assets reached anamount of Ls 568 thous. over the last 2 years. Thus a pressure on cash was exertedthat is necessary for the working capital needs and the bank loan reached theamount of Ls 714 thous. as a result.Test your knowledge:1) Describe the financial analysis ratios according to the following characteristics: economic potential of the enterprise; business operations of the enterprise; operating efficiency of the enterprise; the financial status and solvency; competitiveness of the enterprise.2) Name the factors affecting gross profit of an enterprise.3) Describe the meaning of a primary ratio. What are net assets? Why in the analysis ofreturn from business operations of an enterprise net assets are used?4) What ratio is called the ‘Acid test ratio’?5) Describe the investment ratios.6) How would the increase in the number of shares influence the ‘Earnings per share’ratio?7) Make the performance analysis of your enterprise according to the example providedunder ‘Interpretation of Company M data’.90
Analysis of the Operation and Financial Condition of the Enterprise5. Evaluation of the financial position of Enterprise N5.1. Horizontal analysis of the balance sheet and income statement of Enterprise N5.2. Liquidity ratio analysis of Enterprise N5.3. Activity ratio analysis of Enterprise N5.4. Profitability ratio analysis of Enterprise N5.5. Working capital management in Enterprise N5.5.1. Description of working capital5.5.2. Work in progress5.5.3. Accounts receivable5.5.4. Stock5.5.5. Cash resourcesThis section will look at the financial status of Enterprise N and its working capitalmanagement over the last two years, which is explained by the fact that often the majorfinancial problems in enterprises are caused due to shortage of current assets.Not only the enterprise annual or interim balance sheet and income statementsregularly submitted to the commercial bank are used in the analysis, but also the incomestatements by each quarter that are provided for the enterprise management, as well as theanalytical information on accounts receivable, accounts payable and the turnover will beused.5.1. Horizontal analysis of the balance sheet and income statement of Enterprise NPrior to the review of the key measures of financial analysis the horizontal balancesheet analysis has to be performed in order to have a view of their changes by period (seethe balance sheet of Enterprise N 1. in Table 1 in the annex).By looking at the balance sheet statements of Enterprise N for the period from31/12/2XX7 to 31/12/2XX9, it can be found that the main items having the highestpercentage from and importance in the preparation of the balance sheet and providing withthe necessary information in the result of analysis are as follows:AssetsLiabilitiesfixed assets and inventory retained earnings from previous periodstotal long-term investments retained earnings for the period reportedwork in progresstotal equity capitalaccounts receivableaccounts payablecash and securitiestotal debtstotal current assetstotal for the balance sheettotal for the balance sheetThis is why for these items the horizontal balance sheet comparison will beperformed by analysing their changes by period both in absolute figures, i.e., in monetaryunits (see Table 2 ‘Horizontal analysis of the balance sheet of Enterprise N (in CU) from31/12/2XX7 to 31/12/2XX9’ in the annex), and in relative figures, i.e., in percent (seeTable 3 ‘Horizontal analysis of the main balance sheet items of Enterprise N in percentfrom 31/12/2XX7 to 31/12/2XX9’).91
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