Keywords: business and financial analysis, financial statements , decision making, financial ratios, profitability, liquidity, vertical analysis method, procedure simple reasons
develop skills to perform financial analysis of the company from financial statements is of great importance for decision making .
Financial analysis is to collect financial statements to compare and study the relationships between different groups of each and see the changes made by the various operations of the company.
The interpretation of data obtained through the financial analysis allows management to measure progress by comparing the results achieved with the planned operations and checks, plus reports on debt capacity, profitability and financial strength or weakness This facilitates the analysis of the economic situation of the enterprise for decision making.
METHODS OF FINANCIAL ANALYSIS
financial analysis methods are considered to simplify the procedures used to separate or reduce descriptive and numerical data that comprise the financial statements in order to measure the relationships in a single period and changes in several accounting periods presented.
for the financial analysis is important to know the meaning of the following terms:
PERFORMANCE: The performance generated by the assets put into operation.
RATE OF RETURN: The percentage of use in a given period.
LIQUIDITY: The ability of a company to pay their debts promptly. According
how to analyze the content of financial statements There are the following evaluation methods: method of analysis
vertical
Used to analyze financial statements and the Balance Sheet and Income Statement, comparing the numbers vertically. To make vertical analysis there are two procedures:
1. Percentages comprehensive procedure: It consists in determining the percentage composition of each account of Assets, Liabilities and Equity, based on the value of total assets and the percentage for each income statement item from net sales. Percentage
integral part = value / base value X 100
Example The value of total assets of the company is $ 1,000,000 and the value of inventories of goods is $ 350,000. Calculate the percentage integral. Percentage
integral = X 100
350.000/1.000.000 integral = 35% Percentage
financial analysis to determine whether to invest or extend credit to the business, etc., and determine the efficiency of business management.
2. Procedure simple reasons: simple reasons procedure has great practical value, since it allows to obtain an unlimited number of reasons and indices used to assess liquidity, solvency, stability, strength and profitability as well as the permanence of their inventories storage, periods of recovery from customers and payments to suppliers and other factors widely used to analyze economic and financial situation of a company.
horizontal analysis method
This procedure is to compare financial statements uniform in two or more consecutive periods, to determine increases and decreases or changes in the accounts, from one period to another.
This analysis is of great importance to the company because he is informed by whether changes in the activities and if the results are positive or negative, can also define which deserve more attention as significant changes in gait.
Unlike the vertical analysis is static because it analyzes and compares data in a single period, this process is dynamic because it relates changes in financial statements presented in increases or decreases from one period to another. It also shows the variations in absolute numbers, percentages or reasons, allowing widely observed changes submitted for study, interpretation and decision making.
analysis procedure takes two are
Financial Statements (Balance Sheet and Income Statement) for two consecutive terms, prepared on the same basis of valuation.are presented accounts of the country reviewed. (Excluding the valuation account Cando case of the Balance Sheet).
values \u200b\u200bare recorded for each account in two columns on the two dates be compared, registering in the first column of figures the most recent period and the second column, the previous period. (The accounts must be registered by net worth).
another column is created to indicate increases or decreases, indicating the difference between the figures in the two periods, subtracting the values \u200b\u200bof the most recent year previous year's values. (Increases are positive and decreases are negative values).
In an additional column is recorded and percentage increases and decreases. (This is obtained by dividing the value of increased or decreased between the base period value multiplied by 100). In another column
record changes in terms of reasons. (You get when you take the absolute data of the comparative financial statements and divide the values \u200b\u200bof most recent year between the values \u200b\u200bof the previous year). By observing the data, it follows that when the ratio is below 1, there was a decrease and when it is above, there were increasing.
The financial analysis is undoubtedly an essential tool for defining good strategic development plan of the company, the full knowledge of the company's financial situation is a basic element for whom decisions short and long term, not forgetting the fundamental mission of every manager is to generate the greatest value for the benefit of their organization, and to do this requires that the information is of better quality can be obtained by replacing the smell in business, supported by information in reality.
Author: Giovanny E. Gómez
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