Financial analysis: what is and what is needed

In a highly competitive environment, companies have to struggle for survival all the time. To stay afloat, it is not enough to find and occupy a free market niche, you need to keep and constantly improve your positions. In order to solve these problems, companies should regularly conduct financial analysis of activities. Carrying out a qualitative research will not solve all the problems of the enterprise, but will provide concrete information about the strengths and weaknesses that can be effectively used.

Financial analysis - what is it? This is an assessment method that allows you to determine the sustainability of an enterprise by calculating the indicators on the basis of which a conclusion is made about the company's performance in the present and forecasts for the future. During the study, coefficients are calculated, divided into several groups depending on the direction of the evaluation.

You need to know to independently analyze what the main financial indicators are and how to calculate them correctly.

Coefficients used to assess the performance of an enterprise are included in four main groups of indicators:

• Coefficients of liquidity. They determine the financial stability of the firm in a short time by calculating the degree of mobility of assets and their relationship among themselves.
• Coefficients of solvency. They determine financial stability in the future and characterize the structure of own and borrowed capital.
• Coefficients of profitability. Determine the effectiveness of the use of capital, investment and the activities of the company as a whole.
• Coefficients of turnover. Determine the payback of costs for the production cycle and the intensity of the use of cash.

Each of these groups includes many indicators, but to study the results of the company's activities it is sufficient to apply the basic ones, which number about three dozen.

They are determined according to data taken from the most important accounting documents: the balance sheet and its annex, the financial performance report .

In addition to the derivation of certain indicators and coefficients, a factor analysis is used to study the company's situation, which consists in drawing up an economic model that takes into account the relationship of the coefficients to each other and its impact on the final result.

The use of factor analysis in the economy makes it possible to identify more accurate results and influence positively the adoption of managerial decisions.

An effective study of the results of the operation of the enterprise assumes not only the calculation of the most important indicators, but also the correct use of the obtained data.

The analysis of the company's activities is carried out by the analytical department. However, in some cases, auditors are required. Experts will explain by calculating financial stability indicators and analyzing that such a study should be carried out regularly to see the dynamics. Thus, it is possible to identify such important factors as the growth rate of gross output, the value of own circulating assets, and others.

The specialists will decipher, analyzing what is the profitability and solvency of the company, what are the investment risks, how to use assets effectively and efficiently.

Based on the data obtained, an analytical report is prepared containing information on the results of the analysis carried out, as well as recommendations, the implementation of which will improve the state of affairs of the company.