Using financial statements for economic analysis purposes. Objects of analysis of financial statements, assessment of the information content of financial statements from the perspective of the main groups of its users. Subject and methods of financial reporting analysis
Financial Statement Analysis is the process by which we evaluate the past and current financial position and performance of an organization. However, the main goal is to assess the financial and economic activities of our organization relative to future conditions of existence.
Financial (accounting) reporting is the information base of financial analysis, because in the classical sense, financial analysis is the analysis of financial reporting data. Financial analysis is carried out in different ways, depending on the task at hand.
He can:
Used to identify problems in the management of production and commercial activities;
Serve to evaluate the activities of the organization's management;
To be used to select areas for capital investment, and finally, to act as a tool for forecasting individual indicators and financial activity as a whole.
Analysis is a tool for cognition of objects and phenomena of the internal and external environment, based on dividing the whole into its component parts and studying them in interrelation and interdependence.
The part converted into working capital is spent on raw materials and materials and on converting them into finished products and goods, as well as converting all this into money. The flow of money to suppliers is interrupted by creditors in the same way that the debtor “barrier” slows down the return of money entering circulation.
The process of converting purchased materials into the final product involves spending money on labor, rent, taxes, insurance, utility bills, etc. Some of the fixed assets are fully used in the form of depreciation. In addition, there are many administrative expenses in the organization, which also require money.
The sale of finished products (works, services) and goods can be carried out through direct payments or on credit. In the latter case, debtors slow down the process of cash flow into the organization. If an organization has invested money in external projects, then interest on investments comes from outside the “border” of working capital in the form of income from other non-operating activities. Finally, some funds will be lost due to taxes, interest on loans and other financial expenses
Cash turnover is a reflection of the relationships between participants in the production process. Financial activity as part of economic activity includes all monetary relations associated with the production and sale of products, reproduction of fixed and working capital, generation and use of income.
Financial activities— a purposefully carried out process of practical implementation of all the main functions of the organization’s finances.
Concept, composition and procedure for filling out financial (accounting) reporting forms
The main source of information for financial analysis is the reporting of the enterprise (organization). According to the Concept for the Development of Accounting and Reporting in the Russian Federation for the medium term, the main task in the field of accounting is to ensure the relative independence of the organization of the accounting process from any specific type of reporting.
The Concept provides for the formation of the following types of reporting by business entities:
Individual accounting statements;
Consolidated financial statements;
Management reporting;
Tax reporting.
Individual accounting statements as an element of the accounting method, it performs two functions:
1) informational;
2) control.
On the one hand, it characterizes the financial position and financial results of the activities of an economic entity.
On the other hand, it provides systematic control of the correctness and accuracy of accounting data at the completion of each accounting cycle. In this regard, all business entities must prepare individual financial statements for each reporting period.
Individual financial statements are intended for:
Identification of the final financial result of the activity of an economic entity - net profit (loss) and its distribution among the owners;
Submissions to supervisory authorities;
Identification of signs of bankruptcy of economic entities;
Formation of a unified state database of statistical observation and macroeconomic indicators;
Use in business management, legal proceedings and taxation.
the main task in the field of individual accounting reporting is to ensure guaranteed access for interested users to high-quality, reliable and comparable personalized information about business entities.
Consolidated financial statements as a type of accounting reporting, it is intended to characterize the financial position and financial results of the activities of a group of business entities based on control relationships. Consolidated financial statements perform a purely informational function and are presented to interested external users. This reporting should be one of the main sources of financial information for making economic decisions by these users.
Consolidated financial statements must primarily provide guaranteed access to interested users to high-quality, reliable and comparable information about a group of business entities. To solve this problem, it is necessary to prepare consolidated financial statements in accordance with international standards (IFRS), as well as conduct a statutory audit and publish its results.
Management reporting intended for use in the management of an economic entity (management, other management personnel). In this regard, the content, frequency, timing, forms and procedure for its preparation are determined by the economic entity independently. At the same time, advanced management practice shows that the most useful and effective is the construction of management reporting in which the content and procedure for its preparation are based on the same principles on which individual accounting and consolidated financial statements are prepared.
the main task in the field of management reporting lies in the widespread dissemination of the best practices of its organization, as well as the experience of its use in the management of an economic entity.
Tax reporting(tax returns) are intended for fiscal purposes and are required for preparation by business entities, the circle of which is established by tax legislation. Tax reporting must be prepared on the basis of information generated in accounting, by adjusting it according to the rules of tax legislation.
the main task in the field of tax reporting is to reduce the costs of its formation by significantly bringing the rules of tax accounting closer to the rules of accounting.
According to Russian standards financial statements is a unified system of data on the property and financial position of an organization and on the results of its economic activities, compiled on the basis of financial accounting data in order to provide external and internal users with generalized information about the financial position of the organization in a form convenient and understandable for acceptance by these users of certain business solutions.
The organization must prepare interim accounting reports for the month, quarter of the reporting year on an accrual basis, unless otherwise established by the legislation of the Russian Federation.
When forming financial reporting indicators, you must be guided by:
Accounting Regulations “Accounting Reports of an Organization” (PBU 4/99), approved by Order of the Ministry of Finance of the Russian Federation dated July 6, 1999 No. 43n;
Other accounting provisions;
Chart of accounts for accounting financial and economic activities of enterprises and Instructions for its application, approved by order of the Ministry of Finance of Russia dated October 31, 2000 No. 94n, as amended on May 7, 2003 No. 38n;
This block of regulatory documents is associated with the implementation of the Program for Reforming Accounting for the Medium Term in accordance with IFRS.
About the scope of financial statements
The forms of financial statements given as an appendix to the order of the Ministry of Finance of Russia No. 67n dated July 22, 2002 “On the forms of financial statements of organizations” are exemplary. This means that the organization has the right to make changes to them or develop its own forms of accounting reports in compliance with the requirements established by the Accounting Regulations “Accounting Reports of the Organization” (PBU 4/99), approved by order of the Ministry of Finance of Russia dated July 6 1999 No. 43n. This is confirmed in paragraph 1 of the Instructions on the procedure for drawing up and presenting financial statements, approved by the same order of the Ministry of Finance of Russia dated July 22, 2003 No. 67n.
New approaches to the preparation of financial statements are expressed in the rejection of standard forms of financial statements, i.e. from the same set of indicators about the work of the organization, regardless of the type of activity, scale of production, legal form, etc. As practice has shown, standard forms for some organizations were redundant in terms of the provided indicators, while for others they were insufficient. In this regard, there are three possible options for generating financial statements with conventional names: simplified, standard and multiple.
Simplified version— for small businesses and non-profit (except budgetary) organizations. In this case, the annual financial statements include Form No. 1 “Balance Sheet” and Form No. 2 “Profit and Loss Statement”. For non-profit organizations, it is recommended to additionally include in the annual financial statements a Report on the intended use of funds received (Form No. 6).
Standard option- for commercial organizations belonging to the group of medium and large organizations. This option involves the formation of financial statements in relation to the sample forms shown in the appendix to Order No. 67n, if the indicators given in these sample forms allow you to comply with the general requirements for financial statements set out in PBU 4/99, the rules for evaluating accounting items reporting, as well as the disclosure requirements contained in the accounting regulations.
Multiple option- for commercial organizations belonging to the group of largest organizations, and large organizations with several types of activities. With this option, the number of forms that make up the organization’s financial statements, as well as the variability in the presentation of reporting information, increases significantly for a number of reasons.
Thus, it is advisable, instead of one form No. 5 (Appendix to the balance sheet), to present the indicators of its individual sections in the form of independent forms of financial statements, or to include a section characterizing the amount of current expenses incurred by the organization as an appendix to Form No. 2 (Report about profits and losses). Information on segments (operational and geographic) plays an important role in large companies.
However, in terms of the formation of financial statements, it is possible to identify a fourth option for a separate group of organizations - joint-stock companies, the securities of which are quoted on the stock market. They, along with the accounting statements generated according to Russian rules, draw up annual financial statements based on the requirements of International Financial Reporting Standards (IFRS) and present them to the organizer of trading on the securities market, investors and other interested parties at their request. .
In accordance with the Accounting Law, PBU 4/99, as well as the Instructions on the scope of financial reporting forms, approved by Order of the Ministry of Finance of Russia dated July 22, 2003 No. 67n, the standard annual reporting includes:
- Balance sheet (form No. 1);
Profit and loss statement (form No. 2);
Statement of changes in capital (form No. 3);
Cash flow statement (form No. 4);
Appendix to the balance sheet (form No. 5);
Explanatory note;
Audit report (if this organization is subject to mandatory audit in accordance with federal laws);
Report on the intended use of funds received (form No. 6).
The interim financial statements (for the first quarter, first half of the year, 9 months) must include only the Balance Sheet (Form No. 1) and the Profit and Loss Statement (Form No. 2). The organization has the right to expand this list and, on its own initiative, submit as part of the next quarterly (semi-annual, 9-monthly) report, in addition to the two mandatory ones, any other forms that, as a general rule, are included in the annual reporting.
Requirements for the reliability of reporting
When an organization develops financial reporting forms independently based on the sample forms given in the appendix to the order of the Ministry of Finance of the Russian Federation dated July 22, 2003 No. 67n “Instructions on the procedure for drawing up and presenting financial statements,” the general requirements for financial statements must be observed. reporting (completeness, materiality, neutrality, comparability, comparability, etc.).
The financial statements must include data necessary to form a reliable and complete picture of the financial position of the organization, the financial results of its activities and changes in its financial position. If there is insufficient data to form a complete picture of the financial position of the organization, the financial results of its activities and changes in its financial position, then the organization includes relevant additional indicators and explanations in the financial statements.
At the same time, the neutrality of the information contained in the financial statements must be ensured, i.e., unilateral satisfaction of the interests of some groups of interested users of financial statements relative to others must be excluded. If, through selection or presentation, information influences the decisions and evaluations of users in order to achieve predetermined results, the information is not neutral.
Data from the financial statements of the organization must include performance indicators of all branches, representative offices and other divisions (including those allocated to separate balance sheets).
Indicators about individual assets, liabilities, income, expenses and business transactions, as well as components of capital, should be presented separately in the financial statements in cases of their materiality and if without knowledge of them by interested users it is impossible to assess the financial position of the organization or the financial results of its activities .
Each material item must be presented separately in the financial statements. Immaterial amounts of a similar nature or purpose may be combined and not presented separately.
An indicator is considered significant if its non-disclosure may affect the economic decisions of interested users made on the basis of the reporting information. The organization's decision on whether a given indicator is significant depends on the assessment of the indicator, its nature, and the specific circumstances of its occurrence.
At a minimum, the organization must disclose in the financial statements data on groups of items included in the balance sheet and items included in the profit and loss statement, in accordance with the requirement of the Accounting Regulations “Accounting Statements of an Organization” PBU 4/ 99.
Explanation of the corresponding indicators of groups of balance sheet items or profit and loss statement items, taking into account the size and characteristics of the data included in the group of balance sheet items or profit and loss statement items, can be provided by the organization directly in the above forms (as “including” or “of these” to the corresponding groups of items or items) or in the notes to the balance sheet and income statement.
It should be borne in mind that an amount is considered significant if its ratio to the total of the relevant data for the reporting year is at least five percent. An organization may decide to apply a criterion different from the above for the purposes of reflecting material information in financial statements.
When drawing up a balance sheet, profit and loss statement and explanations thereto, the organization must adhere to the contents and forms of financial statements adopted by it in the prescribed manner from one reporting year to another. Moreover, in case of failure to fill out one or another article (line, column) provided for in the form adopted by the organization, due to the organization’s lack of relevant assets, liabilities, income, expenses, business transactions in the reporting period, this article (line, column) crossed out.
For each numerical indicator of financial statements, except for the report prepared by a newly created organization for the first reporting period, data must be provided for at least two years - the reporting year and the one preceding the reporting one.
If an organization decides in the financial statements presented to disclose data for each numerical indicator for more than two years (three or more), then the organization must ensure comparability of data for all periods.
Comparative information for each numerical indicator can be included directly in the reporting forms adopted by the organization (including in the form of separate tables included directly in the forms of the balance sheet or profit and loss statement after the indicators, in the Appendix to the balance sheet ( form No. 5), in forms developed and adopted by the organization independently) or in an explanatory note.
The financial statements of the organization must ensure comparability of the reporting data with the indicators for the previous reporting year (years) or the corresponding periods of the previous reporting periods based on changes associated with the application of the Accounting Regulations “Accounting Policy of the Organization” PBU 1/ 98, legislative and other regulations, taking into account the reorganization carried out, etc.
If the data for the period preceding the reporting period are not comparable with the data for the reporting period, then the first of the named data are subject to adjustment based on the rules established by regulatory acts on accounting. Each significant adjustment must be disclosed in the notes to the balance sheet and income statement, together with an indication of the reasons for the adjustment.
Financial analysis, as part of economic analysis, represents a system of certain knowledge associated with the study of the financial position of an organization and its financial results, which are formed under the influence of objective and subjective factors, based on financial reporting data.
The purpose of analyzing financial statements is to obtain key (the most informative) parameters that provide an objective and most accurate picture of the financial condition and financial performance of the enterprise. The goal of the analysis is achieved as a result of solving a certain interrelated set of analytical problems.
The analytical task is a specification of the goals of the analysis, taking into account the organizational, informational, technical and methodological capabilities of the analysis.
The object of analysis is what the analysis is aimed at. Depending on the objectives, the objects of analysis of financial statements can be: the financial condition of the organization, or financial results, or the business activity of the organization, etc.
The subject of analysis is a person engaged in analytical work and preparing analytical reports (notes) for management, that is, an analyst.
Financial analysis solves the following problems:
1) assesses the structure of the organization’s property and the sources of its formation;
2) reveals the degree of balance between the movement of material and financial resources;
3) evaluates the structure and flows of equity and debt capital in the process of economic circulation, aimed at extracting maximum or optimal profit, increasing financial stability, ensuring solvency, etc.;
4) evaluates the correct use of funds to maintain an effective capital structure;
5) assesses the influence of factors on the financial results of operations and the efficiency of use of the organization’s assets;
6) exercises control over the movement of financial flows of the organization, compliance with norms and standards for the expenditure of financial and material resources, and the feasibility of spending.
In today's conditions, most enterprises are characterized by a “reactive” form of activity management, i.e. making management decisions in response to current problems. This form of management gives rise to a number of contradictions between: the interests of the enterprise and the fiscal interests of the state; cost of money and profitability of production; return on equity and profitability of financial markets; interests of production and financial services, etc.
Analysis of financial statements acts as a tool for identifying problems in managing financial and economic activities, for selecting areas for investing capital and forecasting individual indicators.
The importance of the financial analysis of an organization here can hardly be overestimated, since it is precisely the basis on which the development of the economic strategy of the enterprise is built. The analysis is based on indicators from interim and annual financial statements. It is advisable to carry out a preliminary analysis before preparing accounting (financial) statements, when it is still possible to change balance sheet items. Based on the data from the final analysis of the financial and economic situation, all directions of the economic (including financial) policy of the enterprise are developed. The effectiveness of management decisions depends on how well it is conducted.
The quality of the financial analysis itself depends on the changing methodology, the reliability of financial reporting data, as well as on the competence of the person making the management decision.
Economic analysis, as is known, is used to follow economic processes and economic relations that arise in organizations. Economic relations arise at all stages of the reproduction process, at all levels of management. At the same time, homogeneous comic relations characterizing one of the aspects of social existence, presented in a generalized abstract form, form an economic category.
Finance, expressing production relations that actually exist in society, having an objective nature and a specific social purpose, acts as an economic category.
The distribution and redistribution of value through finance is necessarily accompanied by the movement of funds, which take a specific form of financial resources.
Composition and content of financial statements, their users.
The main source of information for financial analysis is financial (accounting) reporting.
Accounting statements are a unified system of data on the property and financial position of an organization and the results of its economic activities, compiled on the basis of financial accounting data in order to provide external and internal users with generalized information about the financial position of the organization in a form that is convenient and understandable for these users to accept certain business decisions.
The organization must prepare interim financial statements for the month, quarter, on an accrual basis for the reporting year, unless otherwise established by the legislation of the Russian Federation.
When forming financial reporting indicators, you must be guided by:
Federal Law “On Accounting” dated November 21, 1996 No. 129-FZ;
Accounting Regulations “Accounting Statements of an Organization” PBU 4/99, approved by Order of the Ministry of Finance of the Russian Federation dated July 6, 1999 No. 43n;
Order of the Ministry of Finance of the Russian Federation dated January 13, 2000 No. 4n “On the forms of financial statements of organizations”;
Methodological recommendations on the procedure for financing the financial statements of an organization, approved by order of the Ministry of Finance of the Russian Federation dated June 28, 2000 No. 60n. This block of regulatory documents is related to the implementation of the Accounting Reform Program in accordance with international financial reporting standards.
New approaches to the preparation of financial statements are expressed in the rejection of standard forms of financial statements, i.e. from the same set of indicators about the organization’s work, regardless of the type of activity, scale of production, legal form, etc. As practice has shown, standard forms for some organizations were redundant in terms of the provided indicators, while for others they were insufficient. In this regard, there are three possible options for generating financial statements with conventional names: simplified, standard and multiple.
A simplified version is for small businesses and non-profit (except budget) organizations. In this case, a number of forms are not included in the annual financial statements - Statement of changes in capital, Statement of cash flows, Explanations to the balance sheet. For non-profit organizations, it is recommended to additionally include in the annual financial statements a Report on the intended use of funds received.
The standard option is for commercial organizations belonging to the group of medium and large organizations. This option involves the formation of financial statements in relation to the sample forms shown in the appendix to Order No. 4n, if the indicators given in these sample forms make it possible to comply with the general requirements for financial statements set out in PBU 4/99, the rules for evaluating financial statements items, as well as disclosure requirements contained in accounting regulations.
Multiple option - for commercial organizations belonging to the group of largest organizations, and large organizations with several types of activities. With this option, the number of forms that make up the organization’s financial statements, as well as the variability in the presentation of reporting information, increases significantly for a number of reasons. Information on segments (operational and geographic) plays an important role in large companies.
However, in terms of the preparation of financial statements, it is possible to identify a fourth option for a separate group of organizations - joint-stock companies whose securities are quoted on the stock market. They, along with financial statements prepared in accordance with Russian rules, prepare annual financial statements based on the requirements of International Financial Reporting Standards (IFRS) and present them to the organizer of trading on the securities market, investors and other interested parties at their request.
From January 1, 2000, annual financial (accounting) statements in accordance with Order of the Ministry of Finance of the Russian Federation dated January 13, 2000 No. 4n include the following forms:
Balance sheet (form No. 1);
Profit and loss statement (form No. 2);
Statement of changes in capital (form No. 3);
Cash flow statement (form No. 4);
Appendixes to the balance sheet (form No. 5);
Report on the intended use of funds (form No. 6);
Explanatory note;
The final part of the auditor's report.
The user of financial statements is a legal or natural person interested in information about the organization.
Financial statement analysis work must satisfy many requirements. The range of users of the information contained in financial documents includes various categories - from serious analysts to casual “amateurs”. They all use information about your organization, but with varying degrees of understanding and competence. In PBU 4/99, a user of financial statements is defined as a legal entity or individual interested in information about the organization.
Financial reporting in Russia is of interest to two groups of external and one group of internal users.
External users:
1. Users directly interested in the activities of the organization;
2. Users indirectly interested in it.
The first group of external users includes the following users:
1) the state, first of all, represented by the tax authorities, which check the correctness of the preparation of reporting documents, calculation of taxes, and determine tax policy;
2) existing and potential lenders who use reporting to assess the feasibility of providing or extending a loan, determining loan terms, strengthening loan repayment guarantees, and assessing trust in the organization as a client;
3) suppliers and buyers who determine the reliability of business relations with a given client;
4) existing and potential owners of the organization’s funds, who need to determine the increase or decrease in the share of their own funds and evaluate the effectiveness of the use of resources by the organization’s management;
5) external employees interested in reporting data in terms of salary levels and job prospects in a given organization.
The second group of external users of financial statements are those who are not directly interested in the activities of the organization, but they need to study the statements in order to protect the interests of the first group of users of the statements.
Internal users of reporting include:
1) top management of the organization;
2) managers at the appropriate levels, who, based on reporting data, determine the correctness of the investment decisions made and the efficiency of the capital structure, determine the main directions of the dividend policy, draw up forecast reporting forms and carry out preliminary calculations of financial indicators for the upcoming reporting periods, evaluate the possibilities of a merger with another organization or its acquisition, structural reorganization.
Study of accounting statements and their role in enterprise management. Review of the organizational and economic characteristics of the enterprise. Analysis of financial indicators with subsequent conclusions and proposals for improving the financial condition of the enterprise.
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Introduction
1.5 Procedure for conducting an audit of financial statements
Chapter 2. Analysis of the financial condition of JSC Aviaagregat according to financial statements
2.1 Organizational and economic characteristics of Aviaagregat JSC
2.2 Analysis of the balance sheet of JSC Aviaagregat
2.3 Analysis of liquidity and solvency of the balance sheet of JSC Aviaagregat
2.4 Analysis of indicators of business activity and performance efficiency of JSC Aviaagregat
2.5 Analysis of the financial stability of JSC Aviaagregat
Conclusion
List of used literature
Introduction
Accounting (financial) reporting is a unified system of data on the property and financial position of an organization and the results of its economic activities, compiled on the basis of accounting data in established forms.
One of the essential requirements for accounting reporting in a market economy is its openness to all interested users. The development of market relations, international, economic and financial relations have raised the issue of improving accounting and reporting, bringing their content and methods closer to internationally accepted standards.
The reporting of an enterprise is a logical continuation of financial accounting procedures and is a system of indicators characterizing the property and financial position of the organization as of the reporting date.
In a market economy, an enterprise - an independent element of the economic system - interacts with business partners, budgets at various levels, capital owners and other entities, in the process of which financial relations arise with them. In this regard, there is a need for financial management of the company, i.e. developing a specific system of principles, methods and techniques for regulating financial resources to ensure the achievement of the tactical and strategic goals of the organization. The object of management is the financial resources of the enterprise, in particular their size, the sources of their formation, and the relationships that develop in the process of formation and use of the company's financial resources. Management results are manifested in cash flows flowing between the enterprise and budgets, capital owners, business partners and other market agents.
The basis for making management decisions at an enterprise is information of an economic nature. The decision-making process itself can be divided into three stages: planning and forecasting, operational management, control (financial analysis) of the enterprise. Decisions are made not only by the administration of the organization, but also by other - external - users of economic information. Internal users operate with accounting information, while external users operate with data from the organization’s financial statements. Both data are generated during the accounting process of the enterprise.
All this allows us to specify the goals of accounting and reporting at the enterprise level, which can generally be defined as an assessment:
solvency of the enterprise (security of its accounts payable, liquidity, etc.);
profitability;
the degree of responsibility of persons engaged in economic activities, within the framework of the powers granted to them to dispose of the means of production and labor.
In the system of economic information, accounting reporting is one of the most important management tools containing the most synthesized and generalized information, as well as the basis for an objective assessment of the economic activity of an enterprise, the basis for current and long-term planning, and an effective tool for making management decisions.
Reporting plays an important functional role in the economic information system. It integrates information from all types of accounting and is presented in the form of tables that are convenient for business entities to perceive information.
The importance of financial statements as the most important source of information about the financial condition of the enterprise for all users, we can say that the chosen topic of the thesis is very relevant.
The object of study of the final qualifying work is JSC Aviaagregat.
The subject of the study is the process of preparing financial statements at the enterprise JSC Aviaagregat.
The purpose of the final qualifying work is to study accounting statements and their role in enterprise management, as well as an analysis of the main financial indicators with subsequent conclusions and proposals for improving the financial condition of the enterprise.
Based on this goal, the following tasks will be considered in the final qualifying work:
Consider accounting reporting and its role in enterprise management;
Consider the organizational and economic characteristics of the enterprise JSC Aviaagregat;
Analyze the financial condition of the enterprise JSC Aviaagregat according to the financial statements;
Study the audit of financial statements.
Identify ways to improve financial reporting in accordance with IFRS.
The final qualifying work consists of an introduction, two chapters, a conclusion, a list of references and applications.
The introduction substantiates the choice and relevance of the research topic, defines goals and objectives, and also indicates the theoretical significance and practical value of the work.
The first chapter provides the theoretical foundations of financial statements, methods of analysis and audit of financial statements.
The second chapter contains practical material and the results of the analysis.
Based on the results of the work, brief conclusions are given and documents on the basis of which the analysis was carried out are attached.
Chapter 1. Accounting (financial) reporting information base of economic analysis
economic financial accounting statements
1.1 Concept, meaning and composition of financial statements
The entry of many organizations into the market economy has led to the problem of providing complete financial information about the organization’s activities and property status as of a certain date. Among the groups of external users of such information (investors, lenders, suppliers and other commercial counterparties, customers, government and government agencies, the public), its provision is especially important to investors and future shareholders of the organization.
Accounting statements are a set of interrelated indicators, presented in appropriately approved forms, the results of the enterprise’s work for the past reporting period.
Accounting statements consist of interrelated forms that, in terms of the volume of their constituent indicators, form a unified system of information about the financial condition of the organization.
The value of financial statements is determined by the requirements for them.
Accounting statements must meet the following requirements: reliability, integrity, timeliness, simplicity, verifiability, comparability, economy, compliance with strictly established registration procedures and publicity.
Let's take a closer look at each of them.
Reliability is based not only on accounting information, but also on other types of accounting, primarily statistical accounting. Violation of this approach makes it impossible to draw up a business plan, as well as operational property management at various levels of economic activity. This condition requires comparability of reporting and planned indicators.
In order to ensure comparability of accounting data, changes in accounting policies must be introduced from the beginning of the financial year.
If such comparability is absent, then the data for the period preceding the reporting period are subject to adjustment. In this case, one should be guided by the provisions established by the current regulations of the system of regulatory regulation of accounting in the Russian Federation. This is the methodological unity of reporting indicators.
The adjustment itself and the methodology for its implementation must be disclosed in the explanatory note to the balance sheet and the income statement, along with an indication of the reasons for the adjustment.
The reliability of financial statements is enhanced by their integrity, i.e. it should include indicators of the financial and economic activities of both the enterprise itself and its branches, representative offices and other structural divisions, including those allocated to independent balance sheets.
The integrity or completeness of reporting allows you to make more informed management decisions. For this purpose, synthetic and analytical accounting data must be confirmed by the results of the inventory and the conclusion of an independent audit organization.
Timeliness involves the submission of relevant financial statements to the appropriate addresses within the prescribed period. Organizations, regardless of organizational and legal forms of ownership (with the exception of budgetary ones), are required to submit quarterly financial statements within 30 days after the end of the past quarter. Annual financial statements are submitted within 90 days after the end of the year, unless otherwise provided by the legislation of the Russian Federation. It must be approved in the manner established by the owner’s constituent documents. Reports submitted in violation of the established deadlines lose their significance.
The simplicity of accounting reporting lies in its simplification and accessibility. The transition of accounting to international standards objectively contributes to the implementation of this requirement.
Verifiability of reporting presupposes the possibility of confirming the information presented in it at any time. Indirectly, this condition presupposes the neutrality of the information presented in it.
Comparability involves having the same indicators over different periods of time in order to identify differences and trends.
The purpose of such a comparison is to identify trends in the development of the company. However, when using it, the principle of limiting the usefulness of information cannot be avoided, and this may influence the formation of incorrect conclusions. For example, in order to reduce production volumes in the reporting year, the company decided to restructure production and, in connection with this, attracted long-term bank loans. According to the presented reports, it is not clear that the trend towards improving the financial condition of the company can only take place in the long term.
To implement these approaches, the financial statements must provide a comparison of information on a specific indicator given in the statements for the previous and reporting year.
Cost-effectiveness is achieved through unification and standardization of relevant reporting forms, reduction of individual indicators without compromising the quality of reporting data. This applies, first of all, to indicators that are of a reference and informational nature.
Registration is the next requirement for financial statements. It means that reporting, as well as accounting of property, liabilities and business transactions, is carried out in Russian, in the currency of the Russian Federation - in rubles. The reporting is signed by the head of the organization and the accounting specialist (chief accountant, etc.)
Publicity of financial statements is carried out by organizations, the list of which is regulated by current legislation. These include open joint-stock companies, credit and insurance organizations, stock exchanges, investment and other funds created from private, public and government sources.
Publicity involves publishing annual financial statements in the media accessible to its users, or distributing them in relevant publications (brochures, booklets and other publications), as well as transferring them to state statistics bodies at the place of registration for provision to interested users.
Annual financial statements must be published no later than June 1 of the year following the reporting year.
Accounting statements are published in millions of rubles, and if there is significant turnover - in billions of rubles with one decimal place.
Along with the publication of the annual financial statements, an audit report is also published, the essence of which must contain the opinion (assessment) of an independent auditor (audit firm) on its reliability (certainly positive, conditionally positive, negative, disclaimer of opinion).
Internal accounting reports are not subject to publication, as they are considered a commercial secret. Criminal liability is provided for the illegal receipt and disclosure of information constituting a trade secret.
Annual financial statements of organizations consist of the following forms:
1) balance sheet;
2) financial results report;
3) appendices to the balance sheet;
4) statement of changes in capital;
5) cash flow statement;
Accounting statements are prepared on the basis of synthetic and analytical accounting data.
An enterprise must disclose each significant indicator in its financial statements.
The company chooses its own criteria for materiality. This can be either a generally established materiality threshold of 5% of the total sum of the relevant data, or another reasonable indicator. It seems that for different characteristics of the financial condition of an enterprise this indicator may be different. The main thing is to reflect decisions on the choice of criteria and the reason for this choice in an explanatory note. The form of disclosure of significant indicators is also arbitrary: from reflection directly in the forms or submission of a separate form for each indicator to separate written explanations.
Reporting requires the presentation of data for the previous year. At the same time, comparability of indicators must be observed. This means that the fact that the indicators were formed according to the same rules must be confirmed. If such comparability cannot be ensured, then the accountant must reflect this in the explanatory note.
Let's consider the formation of indicators for each form separately - balance in more detail.
"Balance sheet"
Balance sheet items are filled out on the basis of data from the General Ledger or other similar purpose register on the balance values of the accounting accounts. In the balance sheet form for each item, the numbers of the accounting accounts are indicated in parentheses, the balance of which should be transferred to this item.
Let's consider the composition of balance sheet indicators:
- “Intangible assets” shows the presence of intangible assets at their residual value (with the exception of intangible assets, for which depreciation is not accrued in accordance with the established procedure).
- “Fixed assets” provides indicators for fixed assets, both operating and those under reconstruction, modernization, restoration, conservation or in stock at residual value. The exception is fixed assets, for which, in accordance with the established procedure, depreciation is not accrued.
- “Construction in progress” shows the costs of construction and installation work, the acquisition of buildings, equipment, vehicles, tools, inventory, other durable material objects, other capital works and costs.
- “Income-generating investments in material assets” for this group of articles, organizations making profitable investments in material assets provided for a fee for temporary possession and use (including under a financial lease agreement, under a rental agreement), for the purpose of generating income, reflect the residual value of the specified property.
- “Financial investments” for this group of items, data should be presented in the balance sheet, divided into long-term and short-term. Financial investments are presented as short-term if their circulation (repayment) period is no more than 12 months after the reporting date. The remaining financial investments are presented as long-term and are reflected in the “Non-current assets” section.
- “Long-term financial investments” are shown along with long-term investments in subsidiaries and dependent companies, long-term investments of the organization in the authorized (share) capital of other organizations, in government securities, bonds and other securities of other organizations, as well as loans provided to other organizations.
Section II.
- “Inventories” - displays the balances of inventories intended for use in the production of products, performance of work, provision of services, management needs of the organization (raw materials, materials and other similar values), for sale or resale (finished products, goods), and as well as other material assets (animals being raised and fattened). For this group of items, the organization's costs included in work in progress (distribution costs) and deferred expenses are subject to reflection in the corresponding items.
“Value added tax on acquired assets”
This article indicates the amounts of “input” VAT that were not reimbursed from the budget.
- “Accounts receivable” - data on receivables, payments for which are expected more than 12 months after the reporting date, and receivables, payments for which are expected within 12 months after the reporting date, are shown separately. Accounts receivable are presented as short-term if their maturity is no more than 12 months after the reporting date. The remaining accounts receivable are presented as long-term. In this case, the calculation of the specified period is carried out starting from the first day of the calendar month following the month in which this asset was accepted for accounting.
- “Short-term financial investments” - reflects the actual costs of the organization to repurchase its own shares from shareholders, the organization’s investments in securities of other organizations, government securities, etc., loans provided by the organization to other organizations.
- “Cash” under the items “Cash”, “Cash Accounts”, “Currency Accounts” - shows the balance of funds in the cash register, in current and foreign currency accounts in credit institutions.
- “Other current assets” - displays amounts that are not reflected in other groups of items in the “Current Assets” section of the balance sheet.
III. Chapter:
- “Authorized capital” - the amount of the authorized (share) capital of the organization is shown in accordance with the constituent documents, and for state and municipal unitary enterprises - the amount of the authorized capital.
Increases and decreases in the authorized (share) capital, made in accordance with the established procedure, are reflected in accounting and financial statements after making appropriate changes to the constituent documents.
- “Reserve capital” - reflects the amount of balances of reserve and other similar funds created in accordance with the legislation of the Russian Federation or in accordance with the constituent documents.
- “Targeted financing and revenues” non-profit organizations reflect the balances of received and unused targeted funds as entrance membership and voluntary contributions and other sources.
- “Retained earnings from previous years” - shows the amount of retained earnings from previous years.
- “Retained earnings of the reporting year” indicates the net profit that the organization received for the reporting year.
- “Uncovered loss of previous years” reflects the loss that the company received in previous years and has not yet covered it. This amount is shown in parentheses.
- “Uncovered loss of the reporting year”, this article is filled out by enterprises that received a loss in the reporting year.
Section IV:
Loans and credits” - shows the outstanding amounts of received loans and borrowings that are subject to repayment in accordance with agreements more than 12 months after the reporting date.
If the amounts of loans and borrowings listed in the accounting records are subject to repayment in accordance with the agreement within 12 months after the reporting date, then their amounts not repaid at the end of the reporting period are reflected under the corresponding items in the section “Short-term liabilities”.
Amounts of accounts payable are reflected that are subject to repayment within 12 months after the reporting date.
In the balance sheet, the amount of the organization's debt on received loans and borrowings is reflected taking into account the interest due at the end of the reporting period.
- “Accounts payable” under the article “Suppliers and contractors” shows the amount of debt to suppliers and contractors for material assets received, work performed, services provided to the organization; the item “Bills payable” shows the amount of debt to suppliers, contractors and other creditors to whom the organization issued bills of exchange to secure their supplies, work, and services; the article “Debt to the personnel of the organization” shows accrued but not yet paid amounts of wages, and the article “Debt to state extra-budgetary funds” reflects the amount of debt for contributions to state social insurance, pensions and medical insurance of the organization’s employees, as well as employment fund; the article “Debt to the budget” shows the organization’s debt for settlements with the budget for taxes, fees, including income tax from employees; the article “Advances received” shows the amount of advances received from third-party organizations for upcoming settlements under concluded contracts; The article “Other creditors” shows the organization’s debt for settlements, data on which is not reflected in other articles of the “Accounts payable” group.
"Income statement"
The financial results report consists of 4 sections:
Section 1 “Income and expenses from ordinary activities.”
2 section “Operating income and expenses”;
Section 3 “Non-operating income and expenses;
Section 4 “Extraordinary income and expenses”
As well as reference data and breakdown of individual profits and losses.
All data is shown on a cumulative basis from January 1 to December 31 inclusive. The indicator that needs to be subtracted or that has a negative value is written in parentheses. If the amount of any income exceeds 5% of the total income of the enterprise, then it must be indicated separately. Expenses attributable to such income are also shown separately.
“Statement of changes in equity”
The statement of changes in capital discloses the structure and movement of capital of an enterprise. What it includes is stated in paragraph 66 of the Regulations on Accounting and Financial Reporting in the Russian Federation. Thus, the equity capital of an enterprise includes: authorized (share), additional and reserve capital, retained earnings and other reserves.
The statement of changes in capital consists of four sections and a certificate. When filling out sections I-III of form No. 3, changes have been made;
Column 4 reflects credit turnover on accounts for the reporting year.
This is what you should do if there is no loss. Otherwise, you also need to take into account debit turnover on accounts for the reporting year;
column 5 indicates debit turnover on accounts for the reporting year;
"Cash Flow Statement"
The cash flow statement reflects information about the funds with which the organization conducted its activities in the reporting year and how exactly it spent them. The report reflects information on each type of activity of the organization: current (core), investment and financial.
This section specifies information about borrowed funds. Borrowed funds include bank loans and loans received by an enterprise from legal entities and individuals. It should be noted that loans that the company received for its employees are also reflected in this section
This section reveals the movement of accounts payable and receivable during the reporting year. Accounts payable are the debt of an enterprise to other organizations or individuals. Accounts receivable refers to the debt of the company's counterparties.
This section provides information about the original (or replacement) cost of depreciable property. Columns 3 and 6 indicate the balances of depreciable property as of January 1 of the reporting year and December 31 of the reporting year, respectively. Column 4 reflects the value of property received during the reporting year. And the value of the disposed property is recorded in column 5.
This subsection focuses on intangible assets. To fill out this section, you need data on account 04 “Intangible assets”.
To fill out this subsection, data from account 01 “Fixed Assets” is used.
This subsection reflects the cost:
Land plots and environmental management facilities;
Facilities;
Machinery and equipment
Vehicle;
Industrial and household equipment;
Working livestock;
Productive livestock;
Perennial plantings;
Other types of fixed assets.
To fill out this subsection, use data from account 03 “Income-generating investments in tangible assets”
This section explains in detail the sources of financing for long-term investments and financial investments.
Column 3 indicates the balances of funds that last year were allocated to long-term investments and financial investments. In column 4, the company shows how much funds were raised for such financing during the reporting year. The amount that was spent this year on capital and other long-term investments is recorded in column 5, and the remainder in column 6.
This section details information about long-term and short-term financial investments.
The section deciphers the expenses for the main activity. Moreover, the amount of expenses incurred is shown both for the current year and for the previous year.
This section indicates contributions to state extra-budgetary funds, contributions to non-state pension funds, insurance contributions under voluntary pension insurance contracts, cash payments and incentives, income from shares and contributions to the property of organizations, the average number of employees.
Explanatory note
The explanatory note is drawn up in any form and contains information about the activities of the enterprise, the number of employees, the main indicators and factors that influenced the results of the organization’s activities, as well as decisions on the distribution of profits remaining at the disposal of the enterprise. Additional data is provided on sales volumes of products, goods, works, services by type of activity and geographic markets. Other assets and liabilities, creditors, debtors, other liabilities, certain types of profits and losses are also reflected if they are significant in the total sum of the results of forms No. 1 and No. 2. It should be noted that an amount that is more than five percent in relation to the total of the relevant data is significant.
If an enterprise has subsidiaries and dependent companies, then this is also reflected in the explanatory note. It is also necessary to disclose information about changes in accounting policies. It also indicates restrictions on property rights and, if it is a joint-stock company, information about shares (issued, repurchased and the reasons for which they were repurchased), significant events that occurred after the reporting date.
The explanatory note should reflect:
current solvency,
liquidity,
business activity,
long-term solvency,
financial structure and profitability.
Audit report
In cases provided for by the legislation of the Russian Federation, financial statements are subject to mandatory audit.
The final part of the auditor's report certifies the degree of reliability of the information included in the financial statements of enterprises.
1.2 Legal regulation of accounting and reporting
The system of regulatory regulation of accounting and accounting (financial) reporting consists of four levels of documents.
The first level (legislative) is represented by the Federal Law of December 6, 2011 No. 402-FZ “On Accounting”. This law defines accounting reporting, establishes basic requirements for accounting, accounting documentation and registration, and also defines a system for regulating accounting.
Issues of accounting of individual objects and disclosure of information about them in financial statements are regulated by second-level documents (regulatory). This is a system of accounting regulations. Accounting regulations determine the rules for reflecting information about various accounting objects in accounting and a list of indicators that must be disclosed in financial statements. The main Regulation that reveals the content of financial statements and the requirements for them is PBU 4/99 “Accounting statements of an organization.” It also determines the rules for evaluating items of financial statements and the composition of information accompanying financial statements. PBU 4/99 is applied by the Ministry of Finance of the Russian Federation when establishing:
Standard forms of financial statements and instructions on the procedure for preparing statements;
A simplified procedure for the preparation of financial statements for small businesses and non-profit organizations;
Features of the formation of consolidated financial statements;
Features of the formation of financial statements in cases of reorganization or liquidation of an organization;
Features of the formation of financial statements by insurance organizations, non-state pension funds, professional participants in the securities market and other organizations in the field of financial intermediation;
The procedure for publishing financial statements.
The methodology for accounting and reporting of individual transactions is established by third-level documents (methodological). These include:
Chart of accounts for accounting financial and economic activities of organizations and Instructions for its application (Order of the Ministry of Finance of the Russian Federation dated October 31, 2000 No. 94n);
Forms of financial statements of organizations (approved by order of the Ministry of Finance of the Russian Federation dated July 2, 2010 No. 66n);
Guidelines for inventory of property and financial obligations, etc.
The documents of the fourth level include working documents of organizations that establish rules for maintaining accounting and reporting based on the choice of one of the methods proposed by the Ministry of Finance of Russia. This is, first of all, an accounting policy developed and approved in accordance with the requirements of PBU 1/2008 “Accounting Policy of the Organization.” Since the selected options for assessing assets and liabilities, as well as changes, may affect the amount of financial reporting indicators, organizations are required to disclose significant methods and techniques of accounting in an explanatory note included in the annual financial statements.
When organizing the accounting policy, it is assumed that the organization will continue its activities for the foreseeable future and it has no intention or need to liquidate or significantly reduce its activities and, therefore, obligations will be repaid in the prescribed manner. The going concern assumption is a fundamental principle of accounting and guarantees the completeness and objectivity of financial statements, which will allow the user to form an opinion about the prospects for the organization’s activities at least in the next year after the reporting year. This is ensured by the reliability of accounting information and the disclosure of facts that could affect the going concern of the company, such as events after the reporting date or contingent facts of business activity.
The requirements of regulatory documents on accounting and disclosure of information about individual objects and operations in reporting have now made it possible to move from a set of unified indicators to individual indicators, allowing us to obtain a complete and reliable picture of the property and financial condition of a particular organization. Organizations are given the right to deviate from established rules and include additional indicators and explanations in their financial statements.
The above regulatory regulation of accounting reporting is associated with the implementation of the Accounting Reform Program in accordance with international financial reporting standards.
Currently, by Decree of the Government of the Russian Federation dated February 25, 2011 No. 107, the “Regulations on the procedure for recognizing International Financial Reporting Standards and Explanations of International Financial Reporting Standards for application on the territory of the Russian Federation” have been approved. This document defines that the recognition of documents included in IFRS is understood as the process of making a decision on the introduction of each document included in IFRS into force on the territory of the Russian Federation, consisting of the sequential implementation of the following actions:
a) official receipt of an international standards document from the Foundation;
b) examination of the applicability of the international standards document on the territory of the Russian Federation;
c) making a decision on the introduction of an international standards document into force on the territory of the Russian Federation;
I. General provisions.
This section describes the decision to introduce an international standards document into force on the territory of the Russian Federation, the conditions of its applicability, the procedure for recognition and entry into force.
II. Examination of the applicability of an international standards document on the territory of the Russian Federation.
All procedures for assessing the applicability of an international standards document on the territory of the Russian Federation are described here.
III. Making a decision on introducing an international standards document into effect on the territory of the Russian Federation.
This section explains that “the decision to put an international standards document into effect on the territory of the Russian Federation is made by the Ministry of Finance of the Russian Federation in agreement with the Federal Service for Financial Markets and the Central Bank of the Russian Federation on the basis of the conclusion of an expert body” and sets the deadline for making such a decision .
1.3 Basic methods and techniques for analyzing financial statements
To analyze financial (accounting) statements, a set of general scientific and special methods that are characteristic of all types and areas of economic analysis is used.
Method (from the gr. methodos - research) is a method of research that determines the approach to the objects being studied, the systematic path of scientific knowledge and establishment of truth. The method of economic analysis is understood as a systematic integrated approach to the study of economic processes in their development and interrelation. A systematic approach to analysis consists in considering the object of analysis as a system of interconnected elements (components), studying their influence on the state of the object and the results of its activities.
An important component of the systems approach is complexity, which means considering the obtained results of the activity of the object of analysis as a consequence of the interaction of all its aspects (parties) and the totality of factors influencing them. The characteristic features of the economic analysis method are:
use of a system of indicators that comprehensively characterize the organization’s activities;
studying the relationship between them;
identifying and studying the reasons (factors) for changes in these indicators in order to determine reserves for increasing the efficiency of the enterprise.
Since the analysis of financial (accounting) statements is the most important area of economic analysis, it is characterized by all the features inherent in the method of analysis.
The analysis of financial (accounting) statements is based primarily on general scientific research methods (Table 1.1).
The modeling method is implemented in the analysis of financial statements through the construction of models that make it possible to present the process or phenomenon under study as a system of interrelated factors that influence this process. There are three types of models used in financial analysis:
1) descriptive - models of a descriptive nature. They are fundamental to the analysis of financial statements. These include the construction of a system of reporting Balance Sheets, presentation of reporting in the necessary analytical sections, analysis of the dynamics and structure of reporting indicators, a system of analytical indicators, analytical notes for reporting;
2) predictive - predictive models are used to predict the future financial condition of the organization and the results of its activities. The most common among predictive models are the calculation of the profitability threshold (critical sales volume), the construction of forecast financial reports, models of dynamic and situational analysis;
3) normative - models that allow you to compare actual results with expected, planned, budgeted ones. Such models are used mainly in internal financial analysis; they involve determining standards for each expense item and identifying deviations of actual values of indicators from standard values.
In the practice of financial reporting analysis, six special methods are widely used:
1) horizontal (dynamic, time) analysis - comparison of each reporting item with the previous period;
2) vertical (structural) analysis - determining the structure of the final financial indicators, identifying the impact of each reporting item on the result as a whole, assessing changes in the share of individual items compared to the share of the corresponding items in the previous period;
3) trend analysis - comparison of each reporting item with the corresponding reporting items of a number of previous periods and determination of the trend (the main trend of changes in the indicator, cleared of random influences and individual characteristics of individual periods). Using a trend, possible values of indicators in future periods are determined, i.e. forecasts are made regarding the financial condition of the organization in the future;
4) coefficient analysis (analysis of relative indicators - coefficients) - calculation of relationships between reporting items and determination of interrelations of indicators;
5) comparative (spatial) analysis - comparison of indicators of the financial condition and financial results of the organization’s activities with indicators of competitors, with industry average and general economic data;
6) factor analysis - analysis of the influence of individual factors (reasons) on a performance indicator using deterministic and stochastic research methods.
Table 1 - Content of general scientific methods used in the analysis of financial (accounting) statements
|
Method name |
||
|
Analysis (from gr.analisis - dismemberment, decomposition) |
Studying the subject of analysis by dividing it into its component parts (objects, factors) and studying them in all the variety of connections and dependencies to understand the essence of the subject (for example, the financial condition of an organization, studied during the analysis of financial statements, can be decomposed into such components as liquidity, financial stability, business activity, profitability of an economic entity) |
|
|
Synthesis (from the gr. synthesis connection, combination, composition) |
The study of a subject, an object of analysis in its integrity, unity and interconnection of its parts. It is combined with analysis, as it allows you to connect the parts identified during the analysis process, establish their interaction, understand the subject of analysis as a whole, generalize the results of analytical research (for example, studying only the liquidity of an organization or financial stability separately from other aspects of the financial condition does not allow obtaining a holistic paintings) |
|
|
Induction (from Latin induction - guidance) |
Study of the subject of analysis from the particular to the general, from individual facts to generalized quantitative and qualitative characteristics of various aspects of the financial and economic activities of the organization (for example, the analysis of financial (accounting) statements can begin with the study of particular indicators with the subsequent assessment of their impact on the general indicators of the financial condition of the organization - from analysis of assets and liabilities to assessment of the impact of their size, structure, dynamics on liquidity, financial stability and financial condition as a whole) |
|
|
Deduction (from Lat. deduсtion - deduction) |
Study of the subject, object of analysis by moving from the general to the specific, from general indicators to specific ones (for example, at the beginning of the analysis of financial (accounting) statements, you can calculate and identify general (aggregated) indicators of the financial condition of the organization, and then, to identify the reasons for their changes, move on to the study of particular indicators characterizing the size, structure, state of the organization’s assets and the sources of their formation, external and internal conditions of the enterprise’s activities) |
|
|
Analogy (from the gr. analogogia - similarity) |
Cognition of some objects, phenomena, processes on the basis of their similarity with others. Based on the similarity of some aspects of different objects, the analogy method forms the basis of modeling, widely used in economic analysis, in including in the analysis of financial (accounting) statements |
|
|
Modeling (from the French model - sample) |
Research during the analysis of an object, phenomenon, process based on replacing it with an analogue, a model containing the essential features of the original (for example, the use of factor models to identify reserves, ways to improve the financial condition, profitability of the organization) |
|
|
Abstraction (from Lat. abstrаеrе - to distract) |
Studying the financial and economic activities of an organization by moving through abstraction and abstraction from specific objects to general concepts and ideas (for example, based on an analysis of the financial condition and financial results of a subsidiary, one can to a certain extent judge the financial condition and financial results of a group of enterprises, which it is included in) |
|
|
Dynamic method |
Consideration of any process and phenomenon as a purposeful process, undergoing changes and interconnected with other processes and phenomena (analysis of financial (accounting) statements should be considered as a purposeful process that has a certain scope, directions, information base and methodological approaches to the study of reporting indicators) |
1.4 Methodology for analyzing accounting (financial) statements
Analysis of liquidity and solvency of the enterprise
The main condition for analyzing the financial condition is the ability to “read” the balance sheet. This is one of the ways to assess the financial capabilities of an enterprise and its resources for conducting business activities.
The balance sheet (BB) is the main form of analytical reporting, characterizing in monetary terms the financial position of the enterprise as of the reporting date and consisting of two equal parts: assets and liabilities, which form 5 sections.
Balance sheet analysis can be carried out using one of the following methods:
assessment directly from the balance sheet without first changing the composition of balance sheet items;
construction of a compact comparative analytical balance by aggregating some elements of balance sheet items that are homogeneous in composition;
carrying out additional adjustments to the balance sheet for the inflation index with subsequent aggregation of items in the necessary analytical sections.
Reading the balance sheet is a process of quantitative assessment of the main parameters of the financial functioning of an organization, which allows us to determine the following characteristics of the financial condition of the organization, as well as identify parameters of negative development:
the total value of the organization’s property, equal to the sum of sections I and II of the balance sheet;
the cost of immobilized (i.e. non-current) funds (assets), equal to the total of the first section of the balance sheet;
the cost of mobile (working) funds equal to the total of the second section of the balance sheet;
the amount of the organization’s own capital equal to the total of the 3rd section of the balance sheet;
the amount of borrowed capital equal to the sum of the results of sections 4 and 5 of the balance sheet.
When analyzing the balance sheet, you need to pay attention to the following indicators and their dynamics:
to change the balance sheet currency.
on the ratio of growth rates of working and non-working capital.
In the structure of non-current and current assets, it is necessary to pay attention to changes in the following items:
Construction in progress. This item does not participate in production turnover, and therefore an increase in its share under certain conditions may have a negative impact on the results of financial and economic activities;
an increase in the share of long-term financial investments in non-current assets indicates, on the one hand, the investment orientation of the organization’s investments, and on the other, the diversion of funds from the main production activities;
low share of liquid assets (10-12%) from the value of property, and the basis of current assets is inventories. This ratio indicates, in particular, low liquidity of assets and insufficient liquidity of the balance sheet, which can lead to the insolvency of the enterprise;
the basis of current assets is inventories. An increase in the share of industrial inventories may indicate both an increase in production potential and an irrational economic strategy due to the immobilization of financial resources into insufficiently liquid assets. At the same time, this may be dictated by the desire to protect funds from the effects of inflation by investing in this item;
the extremely low share of cash in current assets (4-7%) indicates the impossibility of immediately repaying urgent obligations;
the growth of accounts receivable and especially those that are doubtful for return indicates the immobilization of funds from circulation and negatively affects the solvency of the organization;
the growth rate of borrowed funds, which outpaces the growth rate of current assets, leads to a decrease in the current liquidity of the enterprise. Exceeding growth of debt capital over equity indicates the organization's dependence on external investors;
equity does not include retained earnings, reserve capital, or accumulation fund. The absence of sources accumulated as a result of financial and economic activities reflects the low level of self-financing of the enterprise;
the basis of the sources of property financing are own funds (90-97%), which are formed only by increasing the “Additional capital” account, which increases (by loan) due to the revaluation of fixed assets. This indicates the need to take into account the influence of the revaluation factor when analyzing the financial condition;
increase in the organization's short-term liabilities. If the liabilities exceed the amount of RUB 100,000. and not repaid after three months, that is, grounds for initiating a bankruptcy case for the organization in an arbitration court;
the rate of change in revenue, profit before tax and net profit is lower than the rate of change in non-current and current assets. This is evidence of a decrease in overall efficiency, an increase in costs;
growth rates of working capital, inventories, work in progress exceeding the growth rate of revenue and profit indicate a decrease in the rate of turnover of working capital, insufficient financial resources to cover costs and expand financial and economic activities.
Balance sheet analysis begins with an assessment of the structure and dynamics of its sections based on an analytical table containing aggregated, i.e. enlarged articles - the results of the liability and asset sections. The analytical balance sheet allows you to assess the structure of the enterprise’s property and simultaneously perform horizontal and vertical analysis of the balance sheet
Liquidity of an enterprise is the ability to convert its assets into money to make all necessary payments as they fall due.
Balance sheet liquidity refers to the degree to which an enterprise's debt obligations are covered by its assets, the period of transformation of which into cash corresponds to the period of repayment of payment obligations. The qualitative difference between this concept and the liquidity of assets is that the liquidity of the balance sheet reflects the degree of consistency of the volumes and liquidity of assets with the size and maturity of liabilities, while the liquidity of assets is determined without regard to the liabilities of the balance sheet.
When analyzing balance sheet liquidity, a comparison is made of assets grouped by the degree of their liquidity with liabilities grouped by their maturity dates.
Assets are grouped according to the degree of decreasing liquidity, divided into the following groups:
A1 - the most liquid assets. These include enterprise cash and short-term financial investments;
A2 - quickly realizable assets. These include accounts receivable with maturity dates in the reporting period, other assets, finished products and goods shipped;
AZ are slowly selling assets. These include current assets minus finished products and goods shipped, VAT on purchased assets, accounts receivable (payments for which are expected more than 12 months after the reporting date). Inventory and work in progress are located at the very beginning of the production cycle, so converting them into cash will require a much longer period of time;
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Homework
Discipline: “Theory of Economic Analysis”
On the topic “The role of accounting reporting in economic analysis”
Introduction
1. Concept and essence of financial statements
2. Financial reporting as an information base for financial analysis
Conclusion
Application
Bibliography
Introduction
The most important conditions for the functioning of market institutions is information that allows them to make informed economic decisions. To meet the general needs of interested users, a unified system of data on the property and financial status and results of the organization’s economic activities is being formed - accounting statements.
The goals of accounting reporting, like analysis, are determined by the needs of users. Therefore, it must contain data on the results of financial and economic activities, as well as on the current financial position and changes that have occurred in it during the reporting period.
One of the main advantages of accounting reporting as a means of communication is its analytical capabilities. Analysis of the organization's annual report is one of the main sections of the current activities of the enterprise's financial services. Its importance is determined by the fact that in a market economy, the financial statements of business entities, which are, in fact, the only means of communication, the reliability of which is very high and, under certain conditions, confirmed by an independent audit, becomes the most important element of information support for the analysis of financial and economic activities. It is the accounting statements, together with statistical and current financial information published by the relevant agencies in the form of analytical reviews on the state of the capital market, that allows us to obtain the first and fairly objective idea of the state and trends in the economic potential of a possible counterparty or investment object.
1. The concept and essence of financial statements.
Accounting (financial) reporting b- this is a set of reporting forms compiled on the basis of financial accounting data in order to provide users with generalized information about the financial position and activities of the enterprise, as well as changes in its financial position for the reporting period in the prescribed form for these users to make certain business decisions.
Reporting includes tables that are compiled according to accounting, statistical and operational accounting data. It is the final stage of accounting work.
Organizations draw up reports using forms and instructions (directives) approved by the Ministry of Finance and the State Statistics Committee of the Russian Federation. A unified system of organizational reporting indicators allows for the preparation of reporting summaries for individual industries, economic regions, republics and for the entire national economy and as a whole.
In accordance with the Federal Law “On Accounting” dated November 21, 1996 No. 129-FZ (as amended on November 23, 2009) and the Accounting Regulations “Accounting Statements of an Organization” (PBU 4/99), the annual financial statements of organizations, with the exception of reporting by budgetary organizations, consists of:
1) balance sheet;
2) profit and loss statement;
3) appendices to them, provided for by regulations;
4) an audit report confirming the reliability of the organization’s financial statements, if they are subject to mandatory audit in accordance with federal laws;
5) explanatory note.
The explanatory note may contain an assessment of the organization’s business activity, the criteria of which are the breadth of product markets, including the availability of export supplies, the organization’s reputation, expressed, in particular, in popularity among clients using the organization’s services, etc.; the degree of implementation of the plan, ensuring the specified growth rate; level of efficiency in using the organization's resources, etc.
It is advisable to include in the explanatory note data on the dynamics of the most important economic and financial indicators of the organization over a number of years, descriptions of future investments, ongoing economic activities and other information of interest to possible users of the annual financial statements.
Small businesses that apply a simplified system of taxation, accounting and reporting are not required to conduct an audit of the reliability of financial statements may not submit as part of the annual financial statements reports on changes in capital and cash flows, an appendix to the balance sheet (forms No. 3, 4 and 5 ) and an explanatory note.
Non-profit organizations have the right not to present a Cash Flow Statement (Form No. 4) as part of the annual financial statements, and also, in the absence of relevant data, a Statement of Changes in Capital (Form No. 3) and Appendices to the Balance Sheet (Form No. 5).
Public organizations (associations) that do not carry out entrepreneurial activities and do not have turnover in the sale of goods (works, services) other than disposed of property, do not prepare interim financial statements.
These organizations do not submit reports on changes in capital and cash flows (forms No. 3 and 4), Appendix to the balance sheet (form No. 5) and an explanatory note as part of the annual financial statements.
2. Financial reporting as an information base for financial analysis
The subject of economic analysis is economic processes that together constitute the economic activities of an organization. The quantitative content and significance of economic processes is expressed by economic indicators, and the quantitative side of the financial processes of economic entities is expressed by financial indicators. Most financial indicators are presented in accounting (financial) statements, each line of which is a financial indicator. Let's consider the most significant indicators of accounting (financial) statements.
The balance sheet (form No. 1) is the most informative form for analyzing and assessing the financial condition of an enterprise.
The main indicators f. No. 1 “Balance Sheet” and references to it are: non-current assets; current assets; assets; balance currency; equity (capital and reserves); long-term and short-term liabilities; accounts receivable and accounts payable; values recorded in off-balance sheet accounts.
The ability to read a balance sheet allows you to:
Obtain a significant amount of information about the enterprise;
Determine the degree of security of the enterprise with its own working capital
means;
Determine due to which items the amount of working capital has changed;
Assess the overall financial condition even without analytical calculations
indicators.
The importance of the balance sheet is so great that financial analysis is often called balance sheet analysis.
The main areas of analysis for a real assessment of financial condition:
1. analysis of financial condition for the short term consists of
calculating indicators for assessing satisfaction with the balance sheet structure.
2. long-term financial analysis examines
structure of funds, degree of dependence of the organization on investors and
creditors.
To assess real analytical capabilities, it is necessary to know the limitations of the information presented in the balance sheet:
1. The balance sheet is historical in nature: it records the results of business transactions that had emerged at the time of its preparation.
2. The balance reflects the status quo in the organization’s funds, that is, it responds to
the question is what the organization is at the moment, but does not answer
to the question of what resulted in this situation.
3. One of the significant limitations of the balance sheet is the principle inherent in it
use of purchase prices. All fixed and current assets are valued at the current prices of their acquisition, which, in conditions of inflation, rising prices, and low renewal of fixed assets, significantly distorts the real assessment of the property as a whole.
In f. No. 2 “Profit and Loss Statement”, certificates and transcripts thereto contain such indicators as: revenue from the sale of goods, products, works, services; truncated and full cost of goods sold; gross profit, profit (loss) from sales; profit (loss) before tax; profit (loss) from ordinary activities; net profit (retained profit/loss) of the reporting period; operating income and expenses; non-operating income and expenses; extraordinary income and expenses; dividends per share; decoding of individual profits and losses.
In f. No. 3 “Report on changes in capital” discloses private indicators of the movement of the organization’s own capital (authorized capital, additional and reserve capital, retained earnings, uncovered losses of the reporting year and previous years); their values are calculated as of the beginning and end of the year; the receipt and use (expense) of all components of equity capital and valuation reserves are reflected.
In f. No. 3, to increase analytical capabilities and implement the principle of transparency of its data, information is included on such factors of increasing equity capital as: additional issue of shares; revaluation of assets; increase in property; merger or acquisition of companies; an increase in income, which, in accordance with the rules of accounting and reporting, is directly attributed to the increase in capital. It also contains information about the factors of reducing equity capital due to a decrease in the par value and number of shares, division and formation of new legal entities as a result of the reorganization of a previously existing legal entity, as well as due to some expenses of the organization now attributable to the reduction of its capital. K f. No. 3, a certificate is drawn up on the change in net assets at the end of the year compared to the beginning; about expenses for ordinary activities; on capital investments in non-current assets.
Subject and objects of financial reporting analysis Analysis from the Greek. Economic analysis is a systematized set of methods and techniques used to obtain conclusions and recommendations of an economic nature in relation to a certain business entity. The analysis procedure consists of dividing the problem into components that are more accessible to study. Thematic types of economic analysis are highlighted: economic analysis in project activities, investment activities in financial and...
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Topic 1. Subject and objects of financial reporting analysis
Analysis (from Greek analysis decomposition) means analysis, division into component parts.Economic analysisthis is a systematized set of methods, methods, techniques used to obtain conclusions and recommendations of an economic nature in relation to a certain business entity. The analysis procedure consists of dividing the problem into components that are more accessible to study.
Thematic types of economic analysis are distinguished, such as economic analysis in project activities, investment activities, financial and production activities, etc. Since the production and financial activities of an organization are inextricably linked, the term “economic activity” is used.
Subject economic analysis is the activity of specific economic entities of any form of ownership, aimed at making a profit or ensuring a balance of costs and income, studied comprehensively with the aim of objectively assessing its effectiveness and identifying reserves for its increase, as well as ensuring the sustainability of the functioning of the analyzed
economic entity.
Purpose of analysis activities of specific economic entities of any form of ownership - prepare information for decision-making.
Information for making management decisions is prepared in three areas:
- assessment of the phenomena under study;
- diagnostics - establishing cause-and-effect relationships and assessing the “power of influence” of individual factors on the result;
- forecasting the consequences of decisions made.
The classification of types of economic analysis is based on the classification of management functions, since economic analysis is a necessary element of each economic management function.
A developed market economy creates a need fordifferentiation analysison internal - managerial and external - financial analysis.
Internal management analysis- an integral part of management accounting, i.e. information and analytical support for the administration and management of the organization with the necessary data for preparing management decisions.
External financial analysis- an integral part of financial accounting that provides information about the organization to external users who act as independent subjects of economic analysis based on data from public financial reporting.
This classification of economic analysis corresponds to the content of the main functions reflecting time stages:
- preliminary control stage (planning function);
- stage of operational management (function of management organization);
- the final stage of management (control function).
All of the above three types of analysis (on-farm
production, financial external and internal management) are present in the management processes of economic facilities. On-farm production and financial analysis has received the greatest development.
Types of economic analysis are also classified according to:
- subjects, that is, who conduct the analysis, management and economic services, owners and economic management bodies, suppliers, buyers, credit, financial authorities;
- periodicity (periodic annual, quarterly, monthly, ten-day, daily, shift analysis);
- the content and completeness of the issues being studied (full analysis of all economic activities, local analysis of the activities of individual divisions, thematic analysis of individual economic issues);
- methods of studying the object (comprehensive, comparative, continuous and selective analysis, etc.).
The main difference between complex analysis- a single goal and comprehensiveness (systematicity) of analysis. Consistency is manifested in a certain logic, in a reasonable sequence of consideration of indicators of economic activity.
The basis for making decisions on production regulation is operational analysis, which is characterized by modeling business situations and the use of standard solutions.
To solve problems of strategic management, a final comprehensive economic analysis of the enterprise is used, a comprehensive analysis of the economic prospects for its development, which will be discussed in the work.
Under the subject of economic analysisunderstands the economic processes of enterprises, associations, socio-economic efficiency and the final financial results of their activities, which are formed under the influence of objective and subjective factors, reflected through the system of economic information. That is, economic analysis deals with the economic processes of enterprises, associations, other divisions and the final production and financial results of their activities.
As an information base for economic analysis, planning and forecast information, enterprise reporting data (accounting, statistical), and some specified economic parameters (tax and interest rates, insurance payments, industry profitability levels, and others) are used.
Essence economic analysis- a comprehensive study of the enterprise’s activities in accordance with its goals, presented through an economic information system.
Used as tools for financial analysisfinancial ratios. These are relative indicators of the financial condition of an enterprise, which express the relationship of some absolute financial indicators to others.
Financial ratios are used: to compare indicators of financial condition; to identify the dynamics of development of indicators and trends in changes in the financial condition of the enterprise; to determine normal limits and criteria for various aspects of financial condition.
Based on the calculated individual indicators and ratios characterizing the financial condition of the company, it is possible to draw more detailed conclusions about the financial position of the enterprise and identify reserves for increasing the efficiency of business activities and prepare proposals for improving the operation of the enterprise.
Basic techniques of accounting (financial) analysis reporting
Accounting (financial) statements serve as the basis for analyzing the financial position of an enterprise.
The purpose of financial analysis is to evaluate the information contained in the statements, compare existing information and create new information on their basis, which will serve as the basis for making certain decisions.
The choice of the depth and scale of analysis, as well as specific parameters and tools (set of methods) of analysis depends on the specific tasks that the user sets for himself in order to obtain the maximum possible information useful to him.
To analyze (interpret) indicators of accounting (financial) statementsuse generally accepted techniques:
- reading reports;
- vertical analysis;
- horizontal analysis;
- trend analysis;
- calculation of financial indicators.
TOPIC 2. ANALYSIS OF BALANCE SHEET, REPORT
ABOUT CHANGES IN CAPITAL AND APPLICATIONS
2.1. Analysis of the organization's balance sheet. Goals, objectives and stages of its implementation
The balance sheet must characterize the financial position of the organization as of the reporting date.
General the purpose of balance analysisis to identify and disclose information about the financial condition of an economic entity and the prospects for its development, necessary for decision-making by interested users of reporting.
To the main tasks of balance sheet analysisshould include:
- assessment of the property status of the analyzed enterprise;
- liquidity analysis of individual asset groups;
- studying the composition and structure of sources of asset formation;
- characteristics of the security of liabilities with assets;
- analysis of the relationship between individual groups of assets and liabilities;
- analysis of the ability to generate cash;
- assessing the possibility of preserving and increasing capital.
When conducting a balance sheet analysis, there are two main goals.
Firstly, the analysis is aimed at obtaining information about the company's ability to earn a profit. This aspect is fundamentally important when deciding on the payment of dividends, the possibility of expanding and developing the business.
Secondly, balance sheet analysis aims to obtain information about the property and financial condition of the enterprise, i.e., about its availability of sources for making profit.
Necessary conditions for successful balance sheet analysis are:
- understanding of the economic conditions of the analyzed enterprise and the goals of its development;
- use of information on the principles of accounting and reporting (accounting policies);
- knowledge of balance sheet analysis techniques.
When analyzing assets necessary:
- identify ways to evaluate individual articles;
- establish facts of changes in accounting policies;
- highlight the main analytical groups: current and non-current;
- assess the significance of individual asset items;
- compare the dynamics of changes in individual items of assets, as well as their totality, with changes in revenue (sales volume);
- compare the dynamics of changes in current assets and short-term liabilities.
When analyzing obligations necessary:
- identify the presence of contingent obligations, as well as obligations arising from the rules of business ethics;
- identify analytical groups: short-term and long-term; urgent and overdue; secured and unsecured;
- assess the importance of short-term and long-term sources of debt financing for the formation of assets.
When analyzing capital necessary:
- assess the capital structure, highlighting that part of it that is formed through contributions (contributions) of owners, and the part that is created through the efficiency of the organization’s activities (profits);
- analyze the reasons for changes in capital;
- assess the availability of reserve capital as a margin of financial strength of the organization.
When analyzing the properties of the balance sheet, determined by the structure of assets and liabilities, as well as their ratio, it is necessary:
- assess the liquidity of the balance sheet by grouping assets according to their turnover (salability) periods, liabilities - according to the urgency of their repayment and comparing the corresponding groups of assets and liabilities;
- characterize the ratio of equity and liabilities;
- estimate the share of long-term sources of financing - equity and long-term liabilities - in the total amount of sources of financing;
- compare the conditions for the formation and repayment of receivables and payables.
Balance sheet analysis methodologyprovides the following main steps:
- preliminary assessment, including assessment of the reliability of information, reading of information and general economic interpretation of balance sheet figures;
- express analysis of the current financial condition, including the calculation of financial ratios and interpretation of the results obtained from the standpoint of assessing current and long-term solvency, the ability to preserve and increase capital.
- in-depth analysis involving the necessary internal and external information. Such an analysis can be carried out by those who can formulate the causes of the problems that have arisen based on a detailed study of internal information. For example, one of the reasons for a decrease in the return on investment in assets may be a decrease in the efficiency of one of the business segments. An in-depth analysis in this regard faces the following task - to find out at the expense of which expense items, types of products, centers of responsibility the identified negative changes occurred and what management actions should be in this case;
- predictive analysis of key financial indicators taking into account decisions made and assessment of financial stability on this basis. The purpose of the analysis at this stage is to find out how past events and current trends, as well as newly made decisions, can affect the organization's ability to maintain financial stability.
A analysis of the composition, structure, dynamics of circulating assets
One of the most important elements of the analysis of an organization's current assets is the analysis of changes in their composition and structure. Current assets are the most mobile part of capital, the state of which largely determines the financial condition of the enterprise as a whole. The stability of the structure of current assets indicates a stable, well-established process of production and sales of products and, conversely, significant structural changes are a sign of unstable operation of the enterprise.
Assessing the financial stability of an organization
To determine the financial stability of an enterprise, it is necessary to name indicators that reflect the sources of formation of the enterprise’s current assets:
- availability of own working capital (SOC), equal to the difference between the value of real equity capital and the sum of the values of non-current assets (result of section I “Non-current assets” of the balance sheet) and long-term receivables (in section II “Current assets” of the balance sheet);
- the presence of long-term sources of reserve formation (CI), obtained from the previous indicator by an increase in the amount of long-term liabilities (result of section IV “Long-term liabilities” balance sheet). If targeted financing and revenues are long-term in nature, then their value is included in long-term liabilities when calculating this indicator; the total value of the main sources of reserve formation (IO), equal to the sum of long-term sources (previous indicator) and loans and credits (Section V “Short-term liabilities” of the balance sheet). If targeted financing and revenues are short-term in nature, then their value is included in short-term borrowings when calculating this indicator.
Three indicators of the availability of sources of reserve formation correspond to three indicators of the provision of reserves with sources of their formation:
- surplus (+) or deficiency (-) of own working capital, equal to the difference between the amount of own working capital and the amount of reserves (Fs);
- surplus (+) or deficiency (-) of long-term sources of reserve formation, equal to the difference in the value of long-term sources of reserve formation and the value of reserves (FT);
- surplus (+) or deficiency (-) of the total value of the main sources of reserve formation, equal to the difference in the value of the main sources of reserve formation and the value of reserves (Fo).
Calculation of three indicators of the provision of reserves with sources of their formation allows us to classify the types of financial stability of an enterprise in Table 1.
Analysis and assessment of balance sheet liquidity organizations
The financial condition of an organization from a short-term perspective is assessed by liquidity indicators, which in general characterize whether the enterprise can timely and fully make payments on short-term obligations to counterparties.
Table 1
Classification of types of financial stability based on
three-component indicator of working capital
|
Indicator, characteristic of financial stability |
Type of financial condition |
|||
|
absolute fin. sustainability |
normal fin. sustainability |
unstable financial state |
financial crisis state |
|
|
Fs = SOS-ZZ |
Fs > 0 |
Fs< 0 |
Fs< 0 |
Fs< 0 |
|
ft = CI - ZZ |
ft > 0 |
ft > 0 |
Ft< 0 |
Ft< 0 |
|
Fo = OI - ZZ |
Fo > 0 |
Fo > 0 |
Fo > 0 |
Fo< 0 |
|
Characteristics of the type of fin. state |
Excess of own sources of financing inventories and costs |
Providing own sources of financing for inventories and costs |
Solvency is impaired, but it is possible to restore it |
Organization On the verge of bankruptcy |
The concepts of “liquidity” and “solvency” are not identical to each other.Solvencymeans that the enterprise has cash and cash equivalents sufficient to pay accounts payable requiring immediate repayment. The main signs of solvency are the presence of sufficient funds in current accounts and the absence of overdue accounts payable.
Liquidity The enterprise assumes the availability of working capital in an amount theoretically sufficient to repay short-term obligations, even if in violation of the repayment terms stipulated by the contracts.The main sign of liquidityserves as a formal excess (in valuation) of current assets over short-term liabilities.
In this case, they distinguish:
- balance sheet liquidity - the ability of an enterprise to cover its business obligations with existing assets, the period of transformation of which into cash corresponds to the period of repayment of business obligations;
- Asset liquidity - the ability of an enterprise's assets to turn into cash with minimal losses in value - is the reciprocal of the time it takes to convert an asset into cash.
Balance sheet liquidity analysisconsists in comparing funds for an asset, grouped by the degree of their liquidity and arranged in descending order of liquidity, with liabilities for a liability, grouped by their maturity dates and arranged in ascending order of maturity.
According to the degree of their liquidity, i.e. the rate of conversion into cash, the assets of the enterprise are divided into the following groups.
A1. The most liquid assets - these include all items of the enterprise's funds and short-term financial investments (securities). This group is calculated as follows:
A1 = DS + KFV.
A2. Quickly realizable assets are accounts receivable, payments for which are expected within 12 months after the reporting date.
A2 = DZ.
A3. Slowly selling assets items in Section II of the balance sheet assets, including inventories, value added tax, accounts receivable (payments for which are expected more than 12 months after the reporting date) and other current assets.
A3 = W + VAT + DZ + ObAproc.
A4. Hard-to-sell assets - items in section 1 of the balance sheet assets - non-current assets.
A4 = BA.
Balance sheet liabilities are grouped according to the degree of urgency of their payment.
P1. The most urgent obligations - these include accounts payable - KZ.
P2. Short-term liabilities are short-term borrowed funds, debt to participants for payment of income, and other short-term liabilities
P3. Long-term liabilities are balance sheet items related to sections IV and V, i.e. long-term loans and borrowed funds, as well as deferred income, reserves for future expenses and payments.
P4. Permanent liabilities or stable - these are the articles in the section III balance sheet “Capital and reserves” (p. 490).
To determine the liquidity of the balance sheet, you should compare the results of the given groups for assets and liabilities.
The balance is considered absolutely liquid if the following ratios exist:
A1>P1, A2>P2, A3>P3, A4<П4
If the first three inequalities are satisfied in this system, then this entails the fulfillment of the fourth inequality, therefore it is necessary to compare the results of the first three groups for assets and liabilities. The fulfillment of the fourth inequality indicates compliance with one of the conditions for financial stability - the presence of working capital at the enterprise.
In the case when one or more inequalities of the system have a sign opposite to that fixed in the optimal option, the liquidity of the balance sheet differs to a greater or lesser extent from absolute. At the same time, the lack of funds in one group of assets is compensated by their surplus in another group in the valuation; in a real situation, less liquid assets cannot replace more liquid ones.
A comparison of liquid funds and liabilities allows us to calculate the following indicators:
- current liquidity(TL), which indicates solvency (TL > 0) or insolvency (TL< 0) организации на ближайший к рассматриваемому моменту промежуток времени:
TL = (A1 + A2) - (P1 + P2)
- promising liquidity(PL) is a forecast of solvency based on a comparison of future receipts and payments:
PL = A3-P3
The method for calculating coefficients and regulatory restrictions are given in the table.
Table 2.
Financial solvency and liquidity ratios
|
Indicator name |
Calculation method |
Normalized limitation |
|
General indicator of solvency, |
||
|
Absolute liquidity ratio |
÷0.7 (by industry) |
|
|
Coefficient urgent liquidity |
Tolerance ÷ 0.8 |
|
|
Current ratio |
Norm 1.5; Optimal ÷3.5 |
|
|
Net working capital |
N.O.K. = Working capital Current liabilities |
Without standard |
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