Analysis of the financial condition of the company

The essence of the method of analyzing the financial status of organizations is the regrouping of assets and liabilities on the basis of certain qualification criteria, based on groupings of analytical indicators characterizing financial stability, solvency and liquidity.

When analyzing financial statements, a variety of measurement tools are used: comparison of quantities (chain dynamics), a series of trends, structural analysis, analysis of coefficients, and specific analysis.

Analysis of the financial condition of organizations involves, first of all, analysis of the property status, characterized by the availability, placement and use of funds (assets) and the sources of their formation (liabilities). This information is reflected in the balance sheet, showing the total value of the property (assets) and the sources of this property (liabilities).

The financial condition of organizations is determined by the expediency and rationality of investing financial resources in assets. Assets are dynamic in nature. In the process of functioning of organizations, the value of assets, their structure are in motion money – goods – money, forming gross income, profits and, accordingly, financial condition.

In this regard, a necessary preliminary stage, preceding the financial analysis, is the transformation of the balance sheet into a form that makes it possible to conduct an objective analysis and convenience for carrying out analytical calculations. This is achieved by constructing a comparative net analytical balance, which is obtained from the initial balance by supplementing it with indicators of the structure and dynamics of the structure of investments and sources of funds of the organization for the reporting period.

To obtain a comparative analytical balance sheet from the balance sheet, it is necessary to eliminate all regulatory items that distort the real value of fixed assets, stocks, sources of own funds. Directly from the comparative analytical balance we get a number of important indicators of the financial condition of the organization – the total value of the property, the value of the immobilized assets, the cost of mobile (working) funds, the cost of tangible circulating assets, the value of equity. Comparative analytical balance combines and systematizes financial resources and their sources of financing. The comparative balance scheme covers the main indicators characterizing the statics and dynamics of financial condition.

The vertical analysis reveals the structure of funds and their sources. The necessity and expediency of carrying out a vertical analysis are due to the use of relative indicators in analytical practice (methods), which allow for inter-economic comparisons of the economic (property) potential and the performance of organizations that differ in the amount of resources used and other volumetric indicators. In addition, relative indicators to a certain extent smooth out the negative impact of inflationary processes that distort the absolute indicators of the financial condition of organizations.

Horizontal balance sheet analysis consists in the construction of analytical tables (based on a comparative analytical balance), in which absolute indicators are complemented by relative rates of growth and decline. It is necessary to study the basic growth rates over a number of years, which makes it possible to analyze not only the change in individual indicators, but also assess their value.

Horizontal and vertical analysis interact, which makes it necessary to build analytical tables that characterize both the structure and dynamics of indicators for assessing the financial condition of organizations.

Consider the result of vertical analysis. As our calculations showed, the value of the organization’s assets is concentrated mainly in current assets — in inventories and costs (59.01–61.98%). This suggests a high degree of security of material resources and a large amount of unsold products. The next largest share is accounted for 27.85% in 2012, 26.65% in 2013 and 28.27% in 2014. Cash and short-term financial investments account for the smallest value – from 0.89% up to 2.21%. We believe that this size of the most liquid assets is unacceptably small compared to the level of companies in highly developed foreign countries in liquid assets and makes up about 7% of the total assets. A low level of liquidity leads to an increase in liquidity risk and entails additional costs when attracting borrowed funds.

Non-current assets are mainly represented by fixed assets. The share of non-current assets in the dynamics varies slightly within 0.45% and does not exceed 10.93%.

The largest share of the organization’s liabilities is represented by borrowed capital, which significantly exceeds its own funds – more than doubled, which at first glance indicates the organization’s financial dependence. In our opinion, the organization does not have sufficient capital, but it maintains surplus reserves by financing with the help of accounts payable (46.96–52.01% of total balance) and short-term loans (21.77–24.51% of total balance). For a stable financial position, the amount of equity capital should be at least half of all assets, a quarter should be financed by long-term loans and only a quarter by short-term loans and payables. The financial position of the organization under study, which is characterized by insufficient equity capital, entails a high financial risk, which in turn increases the cost of financing in the form of high interest on loans and increases the likelihood of bankruptcy.