SECTION III. Strategic financial analysis
CHAPTER 9. Complex analysis of financial statements
The process of analyzing financial statements has a strict logic and concludes with the formulation of conclusions and recommendations that enable the management of the company to make timely decisions, "closing" problem.
We can distinguish the following stages of complex estimation:
1. Preparatory stage: clear statement of the problem, choice of analysis methods, information gathering and assessment of its reliability, translation of standard forms of financial reporting into the format of analytical tables.
2. Economic reading of reports: the formation and calculation of a set of estimates, analysis and interpretation of the results, an integrated assessment of the company's financial condition.
3. Preparation of the analytical report, formulation of conclusions and recommendations.
In order to prepare the analytical report, it is necessary to summarize all the information obtained in the process of analyzing the financial and non-financial indicators that characterize the company's business and its financial condition. The methods of generalization can be very different:
o Formation of a summary table of systematized indicators;
o Definition of an integral indicator similar to that used for building credit ratings, forecasting the company's financial insolvency;
o use the scoring to determine the resulting measure.
The first approach assumes that the totality of the indicators calculated in the process of analysis can be presented in the form of a summary table in which the indicators are grouped according to the directions of analysis determined at the preparatory stage (Table 9.1).
Table 9 . 1. Summary of the financial condition of the company
A number of key performance indicators are described in Appendix 5.
Another method of final estimation is the use of a generalized (integral) indicator, which is the sum of the coefficients, each of which is multiplied by a weight value. The algorithm for constructing the integral indicator is presented below:
o a set of key performance indicators is formed;
o a weight value is calculated for each particular indicator (for example, coefficient);
o the coefficients multiplied by the weight values add up, giving a total of 2
o the summation area is divided into several intervals; depending on the interval in which the value 1, falls, the probability of insolvency (bankruptcy) is determined.
Examples of using integral indicators:
o Lego bankruptcy prediction model;
o Altman model;
o Springage model;
o Fulmer model.
One of the most commonly used methods for the final evaluation is the point system - assigning points for each of the selected scorecards and determining the score. This approach is used by investment companies, making a decision to invest funds, ranking the company in terms of their financial sustainability.
Example of ranking companies by the degree of financial stability using scoring
Assigning a company's points or points, depending on which interval contains the values of a particular financial indicator, is another way to build a rating. The company with the highest result indicator is considered the most successful (Table 220.127.116.11).
Table 9 . 2. Ranking system of companies, developed by INEC
Table 9.3. Grouping by financial strength rating
Consider an example of a comprehensive analysis of the financial reporting of an energy company.
The purpose of the analysis is to assess the financial condition and business activity of companies operating in the electricity market taking into account industry specific features.
Information user - top management and owners.
The analysis is conducted within the framework of the traditional (classical) model of financial reporting analysis.
The processes of restructuring the energy industry are aimed at forming competitive relations in the field of generation and sale of electricity. The competitive sector of the electricity market was practically formed. Nevertheless, the methods of managing the financial and economic activities of generating companies (GK) do not always ensure the effectiveness of the decisions made and are not always adequate to new market relations. This situation causes a number of organizational and financial problems that significantly impede their effective development.
One of the main directions for optimizing the work of the Civil Code is the development of an integrated approach to ensuring the effectiveness of their functioning and the development of the Civil Code, including monitoring the financial condition of companies.
At the preparatory stage, it is required to find out all the specifics of doing business in the analyzed area; this information is used to develop the methodology for conducting analysis (selection of priority areas for analysis, the formation of a set of estimates, the order of their calculation).
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