Analysis of the Operation and Financial Condition of the Enterprise

Analysis of the Operation and Financial Condition of the EnterpriseIn the horizontal analysis of the main balance sheet items such positions asintangible assets, stock, prepaid expenses, shareholders’ or share capital have not beenincluded as the values of these positions do not constitute a material amount in the balancesheet.The balance sheet item ‘Land, buildings, constructions and long-term plants’ on itsturn, has not been included in the horizontal balance sheet analysis as its value does notchange considerably over the entire period under review. This value is only reducing bythe amount of fixed asset depreciation. Due to the same reason the item of the balancesheet ‘Short-term loans’ has not been included in the analysis.The balance sheet item ‘Long-term loans’ has not been included in this analysiseither as there are almost no changes taking place except in the very first period underreview. The reason for this is that the enterprise had purchased cars for own needs onleasing. This is also reflected in the enterprise balance sheet as at the end of period ended31/03/2XX8, when long-term loans have increased by about five and a half thousand CU,there is an increase in the fixed asset and inventory value seen by almost eleven and a halfthousand CU.It can be sensed from Table 2.1 that the total amount of enterprise assets increasesuntil 31/03/2XX9 except the end of 2XX8, after which there can be again an increase intotal assets viewed in the first quarter of 2XX9, while from March of 2XX9 till the end ofSeptember a decrease in the total amount of assets can be observed. This is due to the twolarge unsuccessfully implemented projects of the enterprise as the profitability level ofthese projects was below the projected level of profitability. The problem of costeffectivenesswill be discussed later when the profitability policy of the enterprise will beanalysed. The amount of equity capital in the enterprise has decreased rapidly starting withMarch, 2XX9, as the enterprise has been operating at a loss. On the other hand, theenterprise became aware of its financial position in May, 2XX9, adopted the decision forcost optimisation for further projects, and any changes in this respect can be felt alreadystarting from September, 2XX9.From the data in Table 2.2 it can be seen that the total asset value of the enterpriseincreases until 31/03/2XX9 except at the end of 2XX8, when the decrease in this value ismainly due to the rapid fall in the amount of work in progress.Attention should be also paid to accounts receivable and accounts payable of theenterprise. Almost in the entire period under review until the middle of 2XX9 these twobalance sheet items have a tendency to increase. There is a decrease in the accountsreceivable starting with 31/03/2XX9 as extra work has been input in accounts receivablewhich has brought in some results. This will be discussed in more detail in the section oncurrent asset management including the management of accounts receivable. Debts tocreditors, on their turn, have also decreased, starting with 30/06/2XX9.Relative changes in the asset values are shown in Table 2.3 in the annex. There is atendency to increase in the total value of assets compared to the preceding period, whilethe total amount of assets reduces starting from 31/03/2XX9 as the profit of the enterprisehas declined by 1035% in the period following 31/03/2XX9, the enterprise was actuallyoperating at a loss of more than 150 thousand CU at the moment.In order to obtain a full picture of the enterprise performing the horizontal balancesheet analysis is not sufficient. It is also required to perform the horizontal analysis of the92