Analysis of the Operation and Financial Condition of the Enterprise

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Analysis of the Operation and Financial Condition of the Enterpriseyear after the expiry of the term, it is possible to exclude these 40,000 CU from the currentdebts as they are not due in the short-term, and therefore the real amount of current debtsdue in a short time to the creditors is by 40,000 CU less. This could improve the overallliquidity measures to some extent. Therefore, in Table 5.2 there is a new overall liquidityvalue arrived at with the 40,000 CU being deducted from the amount of short-term debts.In calculation of the quick ratio the 40,000 CU will also be deducted from the amount ofcurrent debts.Table 5.2Adjusted estimate of the Enterprise N overall liquidity for the period from31/12/2XX7 to 31/12/2XX9 (in CU)Dec.,2XX7March,2XX8June,2XX8Sept.,2XX8Dec.,2XX8March,2XX9June,2XX9Sept.,2XX9After reducing the amount of short-term debt by the credit line of 40,000 CU theoverall liquidity is slightly improved (see Table 5.2). Now liquidity is almost always abovethe critical level of 1 by the end of March, 2XX9, while afterwards it is below the criticallevel of 1. Theoretically, this enterprise should have undergone the bankruptcy procedurein the middle of year 2XX9 already, however, in view of the fact that this enterprise isoperating in the construction industry where suppliers await their invoices to be paid forone year even, the enterprise is still in business. If the debt to suppliers is too high and hasnot been paid for a considerable amount of time, the suppliers cease supplying materials tothe enterprise until they receive at least a partial payment for the debt. There areconstruction materials stores that have set the maximum credit limit which can be reachedwithout having to face any sanctions. As it was noted before the largest materials supplierhad issued the maximum debt or credit limit of 40,000 CU to Enterprise N, because inconsideration of the amount of construction materials purchased by Enterprise N from thelargest materials supplier, this is beneficial for the creditor.Quick liquidity ratioIn the estimation of this measure the formula for calculation of the quick ratio 4.2or 4.3 is applied. In order to calculate the quick ratio, it is necessary to know the totalamount of company’s current assets, stock, prepaid expenses and the amount of short-termdebts.Table 5.3Estimate of the Enterprise N quick liquidity ratio for the period from31/12/2XX7 to 31/12/2XX9 (in CU)Dec.,2XX9Totalcurrentassets 167806 210557 241778 343779 318301 476754 386462 296149 304415Adjustedshort-termdebts 152 442 177 224 275 697 256 244 287 454 430 252 505 623 437 655 378 595Overallliquidity 1,10 1,19 0,88 1,34 1,11 1,11 0,76 0,68 0,80Dec., March, June, Sept., Dec., March, June, Sept., Dec.,94
Analysis of the Operation and Financial Condition of the Enterprise2XX7 2XX8 2XX8 2XX8 2XX8 2XX9 2XX9 2XX9 2XX9Total currentassets 167806 210557 241778 343779 318301 476754 386462 296149 304415Stock 203 347 1491 653 1036 666 3057 4416 1005Prepaidexpenses 1761 1869 1932 2228 2479 2743 3016 3686 2866Adjustedshort-termdebts 152442 177224 275697 256244 287454 430252 505623 437655 378595Quickliquidityratio 1,09 1,18 0,86 1,33 1,10 1,10 0,75 0,66 0,79By looking at Table 5.3, where the dynamics of the quick ratio values are displayedfor the period between 31/12/2XX7 and 13/12/2XX9 and comparing it with the overallliquidity dynamics shown in Table 5.2, it is clear that the overall liquidity is almost as highas the quick ratio as the amount of stock and prepaid expenses from total assets isinsignificant. It can be said that the total assets of the enterprise are liquid assets, becausethe quick ratio is the relationship of liquid assets and the short-term liabilities. Of course, itis a general statement, as any judgement concerning the real level of liquidity can be madeonly upon the analysis of accounts receivable, because there is a possibility that bad debtsconstitute a large percentage of accounts receivable. Accounts receivable will be analysedlater.The analysis carried out allows to draw the conclusion that both the overallliquidity and the quick ratio of the enterprise has been too low starting with March, 2XX9,which means that the enterprise is facing problems with paying off their creditors’ debts.Another important measure of assessment of the liquidity status is the currentcapital or working capital, which is estimated as the difference between the amount ofcurrent assets and short-term debts (see 4.6. formula 4.6) As it has been stated before theshort-term debts were adjusted by 40,000 CU in the amount of the credit line issued. Theamount of current capital or working capital is calculated in Table 5.4.Table 5.4Estimation of the working capital for the period from 31/12/2XX7 to31/12/2XX9 (in CU)Dec.,2XX7March, 2XX8June,2XX8Sept.,2XX8Dec.,2XX8March, 2XX9June,2XX9Sept.,2XX9Dec.,2XX9Workingcapital 167806 210557 241778 343779 318301 476754 386462 296149 304415Adjustedshort-termdebts 152442 177224 275697 256244 287454 430252 505623 437655 378595Workingcapital 15364 33333 -33919 87535 30847 46502 -119161 -141506 -74180Changes inworking - 17969 -67252 121454 -56688 15655 -165663 -22345 6732695
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