Corporate Financial Statement Analysis Essay
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Enterprise Financial Statement Analysis Paper 1
Executive Summary
With the continuous development of the market economy and the standardization of business management, the analysis of enterprise financial statements is becoming more and more important in enterprise financial management. Enterprises need to timely discover the problems in financial accounting and business operations, it is necessary to analyze the data through the financial statements to make the correct judgment. In the process of analyzing the financial statements must pay attention to the comprehensive use of different analytical methods, the use of financial data to find the problems of the company, so as to provide correct help for the decision-making of stakeholders.
Keywords
Financial statements Problems Countermeasures
I. Overview of Financial Statement Analysis
Financial statement analysis refers to the use of financial statements and other information as the basis and starting point for adopting a specialized method to systematically analyze and evaluate the past and present operating results, financial position and its performance of the enterprise. The purpose is to understand the past, evaluate the present, predict the future, and help stakeholder groups to improve decision-making. The basic function of financial analysis is to convert a large amount of statement data into information useful for specific decision-making and to reduce the uncertainty of decision-making. The methods of financial analysis are comparative analysis and factor analysis. Among them, the comparison of financial ratios in the comparative analysis method is the most important analysis, they are compared through the relative number, excluding the impact of enterprise size, so that different comparative objects in different periods and between different industries to establish comparability, reflecting the intrinsic connection between the accounting elements. The basic financial ratios of an enterprise can be categorized into four types: i.e., liquidity ratio, asset management ratio, liability ratio and profitability ratio. Different financial ratios play different roles in the financial management of enterprises.
(a), the liquidity ratio. Mainly current ratio and quick ratio, through the calculation and analysis of these ratios, used to evaluate the ability of the enterprise to realize and reflect the short-term solvency of the enterprise, which depends on the enterprise can be transformed into cash in the near future how much of the current assets.
(ii), asset management ratios. Including operating cycle, inventory turnover, accounts receivable turnover, current asset turnover and total asset turnover. These ratios are important financial ratios used to measure the efficiency of enterprise asset management.
(c), liability ratios. Mainly includes gearing, equity ratio, net tangible debt ratio and interest earned multiples. Through the statement of the relevant data to calculate these ratios to analyze the relationship between equity and assets,
Analyze the intrinsic connection between different interests, to evaluate the long-term solvency of the enterprise.
Second, the problems in the analysis of financial statements
(a), the name of the statement items do not match the problem. Calculate and analyze the financial ratio indicators, pay attention to the financial statements of certain assets do not match the name of the project. In accordance with international practice, the assets are resources that can bring future economic benefits, can not bring future economic benefits of the project, even if included in the balance sheet, but not the real meaning of assets, but the "virtual assets". For example, amortized expenses, deferred assets, losses on current assets to be disposed of and losses on fixed assets to be disposed of, as well as cold backed salvage inventory, etc., are essentially expenses or losses that have actually been incurred. Therefore, when calculating financial ratios involving asset items, such as gearing ratio, current ratio, return on total assets and other indicators, if total assets or current assets include "virtual assets", the calculation results will deviate from the actual situation, thus affecting the correctness of the evaluation. In addition, quick assets, which are used to calculate the quick ratio, are the difference between current assets and inventories, and are considered to be assets with quick liquidity, which is not the case in reality. Clearly, quick-liquid assets include "virtual assets" such as losses on current assets awaiting disposal and amortized expenses, which are neither "quick" nor liquid. Prepayments in the quick assets are even slower to realize than inventories, because the raw materials it will turn into are only the starting point of inventories. These issues must be taken into account when calculating and analyzing the quick ratio.
(ii), the limitations of the current financial statements themselves. Balance sheet items and income statement items to the historical cost of valuation is relatively reliable, but lack of relevance. Performance: ignore the impact of the level of price changes, can not reflect the actual value of corporate assets, liabilities and owners' equity and revenue, costs, expenses; in the modern economy, currency changes have been a common phenomenon, the further loosening of the assumptions of monetary measurement, not only impact on the historical cost, but also the impact of income and expenses of the matching principle. Measuring historical cost in monetary terms does not reflect non-monetary financial information, nor does it reflect in the statements the opportunity cost, which is often one of the factors that users of financial statements must consider in making decisions. The optionality of accounting policies and methods affects comparability and the veracity of the financial statements in reflecting the economic operations themselves; chance or whitewashing can change the content of the statements and affect the results of analysis. Problems with the basis of comparison and the lack of uniform standards of comparison. The data in the financial statements is categorized and summarized data, it can not directly reflect the details of the financial situation of the enterprise.
Third, specific countermeasures
(a), the reform of the financial statements themselves. The improvement of the current financial statements can be carried out along two paths: one is the direction of full disclosure; the other is the direction of simplified disclosure. Improvements along the former direction: on the one hand, the notes are getting richer and richer, has entered the "note era"; on the other hand, the content of other financial reports and
varieties are also more and more. Therefore, this improvement has become the mainstream of the reform of financial statements, and it can be predicted that the direction of this reform will not change, but only to improve and enrich the results of the existing reform, and the innovation of the reporting method. The current outcome is mainly the provision of simplified annual reports. This direction of reform is only accompanied by full disclosure, but only as a corrective tool for the tendency of information overload, it is difficult to become the mainstream of the reform, perhaps because of this, the simplified annual report is also integrated into other financial reports, and full disclosure of the direction of the merger.
(ii), pay attention to the industry environment in which the enterprise and the analysis of the enterprise's competitive advantage. Industry environment plays a decisive role for all enterprises in this industry, as the enterprise is in the emerging industry, the future development prospects, easy to borrow new funds to repay the old . Debt, maintains a high level of financial leverage, and is expected to attract new investors, improve the firm's capital structure, and reduce financial risk. In contrast, an industry in the sunset industry, even if the enterprise is currently in the market share is high, generating a large amount of net cash flow, but due to the lack of sustained growth in the market demand, will continue to shrink, the enterprise, although the various financial indicators are excellent, in the same industry in a leading position, but due to the whole industry is in a state of decline, the enterprise can not escape the fate of the decline. Therefore, in the enterprise financial statement analysis, the enterprise's financial indicators should be combined with the enterprise specific industry environment and the enterprise's competitive advantage and analyze. The financial statement is a comprehensive reflection of the financial position of the enterprise for a certain period of time and operating results of the report documents, including balance sheets, income statements and cash flow statements.
How to do a good job of analyzing the financial statements? It is from the income statement, balance sheet, cash flow statement of the three main statements to start, collect complete information, the use of financial ratios on the enterprise's economic indicators for each period of comparative analysis. Financial analysis should be targeted, but also to have the integrity of the financial analysis can be roughly divided into three aspects:
First, the analysis of business results
The general accounting statements of the user focus on the business situation and results of the business. The first concern is how much profit the enterprise realized that year, how the benefits, compared with the history of growth and so on. Therefore, the financial analysis of the enterprise should first meet this need of the users of accounting statements.
(a) analysis of the profitability of enterprises
According to the annual profit and loss account, the first analysis of the composition of profits. Figure out the source of the total profit of the year, including operating profit, investment income, subsidized income and non-operating income and expenditure net four parts. By analyzing the proportion of each profit to the total profit, to determine the quality of the enterprise profit formation. Focus on the proportion of total operating profit to evaluate whether the business performance is outstanding, whether the source of profit is stable. Secondly, analyze
The total profit of the enterprise to increase or decrease changes. Mainly analyze the completion of the main business in order to check whether the economic business is developing according to the predetermined goals and predict the progress of the subsequent periods. Comparison of the actual number with the expected number is used to find out the existing gaps. Comparisons are made with the same period of previous years to identify changes and trends in each item, and then some items with large variances are analyzed in a focused manner. Third, to analyze matters that will affect profit changes in the future. For example, the development of new markets, new products and other special analysis, foreign trade import and export rights of enterprises can be divided into foreign trade, domestic sales of two parts of the analysis, so that statement users to make the right judgment and decision-making.
(B) cost and expense elements of the analysis:
Profit is the most important economic indicators to assess the business operation, and profit indicators to do further analysis, there are two forms:
1, the amount of cost and profit analysis. Mainly based on the following three formulas: total profit = sales revenue - total costs and expenses; sales revenue = sales volume × unit price; total costs and expenses = fixed costs + unit variable costs × production; can be analyzed from the unit price, variable costs, sales volume, fixed costs and other basic factors such as this amount of profit. In practice. As the main business involved in the product is generally more stable, unit price, variable costs and other factors do not change much (unless the product has a higher value-added or raw material price fluctuations), so only the sales volume, fixed costs and previous years can be analyzed.
2, profit structure analysis. From the income statement of the composition of the project to start, the first sales revenue comparison, compared with previous years, the current period of sales with or without large changes; and then converted to other items accounted for the percentage of sales revenue, to see the proportion of the income statement, which some of the project changes, and further analyze the reasons. Non-operating income and expenditure, investment income is no exception. In the structure of the percentage of the basis can also be combined with a number of financial indicators to analyze, for example, cost margin can be broken down into the net sales rate and cost as a percentage of sales revenue, you can calculate how much profit can be generated by the expenditure of this cost, business managers can accordingly target compression costs, reduce costs, and strive to minimize inputs to obtain the maximum output.
(c) Evaluation of corporate profitability.
That is, by calculating the return on assets, sales margins, cost margins and other indicators and the comparison of the various indicators with the previous year's changes to correctly evaluate the profitability of the enterprise and the development of the future.
Second, cash flow analysis
The cash flow statement reflects the information about the inflow and outflow of cash and cash equivalents during a certain accounting period, which is used to reflect the ability of the enterprise to create net cash flow. The analysis of the cash flow statement helps the statement
Users to understand the enterprise in a certain period of cash inflow and outflow information and the reasons for the change, predict the cash flow in the future period, evaluate the financial structure of the enterprise and the ability to repay debts, judge the enterprise to adapt to changes in the external environment on the adjustment of cash receipts and expenditures of the balance of the room to reveal the level of profitability of the enterprise and the relationship between the cash flow. It can play a good complementary role to the analysis of other financial indicators. According to the cash flow statement of the relevant data focus on the calculation of the following ratio indicators for analysis:
(a) net cash flow composition analysis. Calculate the proportion of net cash flow, that is, net cash flow from operating activities, investing activities, financing activities / net increase in cash flow × 100%. Analyze the sources and weighting of net cash flow to determine the content and quality of net cash flow.
(ii) Analysis of the impact of cash flow on the business situation.
1. The ratio of cash sources that is, net cash flow from operating activities, investing activities, and financing activities/total cash sources × 100%. The ratio illustrates the proportion of the enterprise's various sources of cash flow, from the source of funds to reflect the development needs of the enterprise's dependence on a certain degree of cash flow.
2, cash flow and sales ratio that net flow from operating activities / sales revenue × 100%. The ratio reflects the cash flow that can be obtained from each realized dollar of sales revenue. The ratio is super high, indicating that the more effective the business operation to generate cash flow. Compared with the sales margin, you can analyze the reasons for the difference between net profit and net cash flow.
3, the return on cash flow of assets that the net cash flow from operating activities / total assets × 100%. The ratio reflects the cash flow that can be obtained from each dollar of assets of the enterprise. The ratio is super high, indicating that the enterprise's assets are utilized more efficiently.
4, the ratio of net cash flow from operating activities to net profit, that is, net cash flow from operating activities / net profit × 100%. The ratio represents the net cash inflow from operating activities in each dollar of net profit, reflecting the level of net profit collection, which helps to analyze the net profit of the period and the reasons for the difference between the net cash receipts and disbursements.
5, depreciation and amortization of net flows from operating activities on the rate, that is, (depreciation + amortization of operating expenses) / net cash flow × 100%. The ratio reflects the impact of depreciation and amortization in the flow of business activities, the smaller the ratio, the better the operating results of business assets.
Three, enterprise liabilities and solvency analysis
According to the enterprise balance sheet, the first to figure out the basic situation of the enterprise's liabilities, that is, the current liabilities and long-term liabilities and their structure, and then analyze the specific items and quality of the various liabilities, and then analyze the solvency of the enterprise. Solvency analysis refers to the analysis of the enterprise's ability to repay various short-term and long-term liabilities. The strength of an enterprise's solvency is of primary concern to creditors, but it is also of ordinary concern to managers and shareholders out of concern for the security of the enterprise. The analysis of solvency is divided into short-term solvency analysis and long-term solvency analysis.
Enterprise Financial Statement Analysis Essay 2Abstract:
The analysis of financial statements plays a vital role in understanding the financial position, operating performance and cash flow of an enterprise, evaluating the solvency, profitability and operating ability of an enterprise, and helping to make economic decisions. Therefore, financial analysis should focus on the interaction, sustainability and limitations of the statement data, as well as analyzing the limitations of the current financial statements.
Keywords: financial statements, limitations, interactivity, sustainability
Financial statement analysis can not only correctly and scientifically evaluate the financial position of the enterprise, operating results and cash flow, and reveal the future rewards and risks of the enterprise, but also check the completion of the enterprise's budget, assess the performance of the operating managers, and provide assistance in the establishment of a sound and reasonable incentive mechanism.
First, the financial statement analysis overview
Financial statement analysis is based on the financial statements and other information, the use of a series of specialized techniques and methods to analyze the results of the enterprise's operating results, financial position and cash flow analysis and evaluation, for financial accounting report users to provide the basis for management decision-making and control of a Management. The purpose of financial statement analysis is to understand the past, evaluate the present, predict the future, and provide a basis for relevant information users to develop management programs. Financial statement analysis is a science, but also an art. Based on the same statement data, due to the different purposes of the user, analyzing experience and ability differences, their insight into the meaning and significance of financial data will be different.
Second, the limitations of financial statements
Due to the impact of various factors, financial statement analysis and its analytical methods. There are certain limitations in itself, specifically in the following aspects:
1, the financial statements reflect the information resources have incompleteness.
Financial statements do not disclose all the information of the company. Included in the enterprise financial statements are only available, can be measured in monetary terms of economic sources. In reality, the enterprise has many economic resources, either because of objective conditions, or because of accounting practice constraints, not reflected in the statement. For example, a large number of assets outside the accounts of certain enterprises can not be reflected in the statement. As a result, the statement reflects only part of the economic resources of the enterprise.
2, the financial statements of the future value of decision-making is not adaptive.
As the accounting statements are prepared in accordance with the principle of historical cost, many of the data do not represent their current cost or realized value. Inflationary period, some data will be affected by price changes, due to the assumption that the value of the currency remains unchanged, the monetary data at different points in time will simply add up, so that it can not objectively reflect the financial position of the enterprise and results of operations, it is inevitable that the statement user's decision-making is somewhat misleading.
3, the financial statements lack of data to reflect long-term information. As the financial statements are reported in annual installments, only short-term information is reported, and information reflecting long-term potential cannot be provided.
4. Financial statement data are affected by accounting estimates. Some of the data in the accounting statements is not very accurate, some items of data is based on the experience of accounting staff and the actual situation to estimate the measurement. For example, the bad debt provision ratio, the net salvage rate of fixed assets and so on.
5, the financial statement data is affected by management's choice of accounting policies.
A variety of choices of accounting policies and accounting treatments, so that different enterprises of the same kind of statement data lack of comparability. According to the "Enterprise Accounting Standards", the enterprise inventory issue valuation method, fixed assets depreciation method, etc., can have different choices. Even if the actual operation of the two enterprises is exactly the same, the conclusion of the financial analysis of the two enterprises may be different.
Three, the interaction of financial statement data
Financial statement analysis is mainly from three aspects: that is, the income statement, balance sheet, cash flow statement. Financial analysts cut into these data, pay attention to the interaction of financial statement data, do not be localized data generated by the larger changes in the mind, simple judgment of the opportunities or risks faced by the enterprise. Business operations are interrelated, the final performance of the financial statement data should be a positive response to the larger changes, if only one-sided fluctuations, which will inevitably cause the user to pay close attention. Then there is no relevant interaction of fixed asset asset data, fixed asset renewal and reconstruction, the increase in liabilities, there is no interaction of income data, profit data interaction. Otherwise, the enterprise to make improvements in business management, not supported by conventional reasons, that requires us to carry out deep thinking, so as to explore the depth and breadth of financial statement analysis, improve the efficiency and effectiveness of financial analysis.
Fourth, pay attention to the sustainability of the financial statements profitability data
As a relevant stakeholder in the enterprise, whether it is investors, managers or creditors, the improvement of the profitability of the enterprise are very concerned. It is indeed gratifying that companies have achieved greater growth in profits. But while happy, we have to maintain a rational, whether such growth is sustainable. Accounting staff can adjust the profitability figures of a company in the short term through many methods that skirt the edges of the accounting system, or even by faking, which is also known as surplus management. As a result, when users of statements receive a sudden burst of light from such earnings data, they should not be burned and misjudge that the business situation has been reversed.
V. A few suggestions to improve the limitations of financial statement analysis
1, to strengthen the use of information in the notes to the financial statements.
The notes to the financial statements are additional explanations and detailed explanations of the contents and items that cannot be or are difficult to fully express in the financial statements themselves. In the analysis of corporate finance. Should make full use of the information in the financial statements and notes to the statements, linked to other relevant information. Careful and in-depth analysis, research, in order to improve the understanding of the overall situation of the enterprise, a more accurate evaluation of the enterprise's financial position and business performance.
2, improve the comprehensive ability and quality of financial statement analysts.
Regardless of which financial statement analysis method. The judgment of the analysts is particularly important to draw the correct conclusions of the analysis. Usually to strengthen the training of financial statement analysts, improve the comprehensive quality of analysts, improve their interpretation of the statement indicators and the ability to judge, and make them also have accounting, finance, marketing, strategic management and business operations and other aspects of knowledge. Skillful mastery of modern analytical methods and analytical tools, in practice to establish a correct analysis of the concept, and gradually cultivate and improve their ability to analyze the problem of judgment and comprehensive data collection ability and mastery of the ability to use, greatly for the management of the enterprise and decision-making to provide a true and reliable basis.
3, quantitative analysis and qualitative analysis.
Modern enterprises face a complex and changing external environment, these external environments are sometimes difficult to quantify, but will have an important impact on the status of the enterprise financial statements and operating results. Therefore, in the quantitative analysis at the same time, the need to make qualitative judgments, on the basis of qualitative judgments, and then further quantitative analysis and judgment, giving full play to the rich experience of people and the amount of precision calculation of the two aspects of the role of the statement analysis to achieve optimization.
4, dynamic analysis and static analysis combined.
The production and operation of business and financial activities is a dynamic development process. Therefore, attention should be paid to the dynamic analysis, in the past to clarify the situation on the basis of analyzing the current situation of the possible results of the proper prediction of the future of the enterprise has a certain help.
References:
[1] Liu Yongze, Chen Lijun. The first edition of the book was published by the University of Dalian, China, in the year of 2009. Dalian: North University of Finance and Economics Press, 2009.
［2］ Lu Zhengfei. The analysis of financial statements [M]. Beijing:CITIC Publishing House,2007.
[3] Zhang Ailing, Jiang Dongxia. Analysis of the limitations of the current financial statements[J]. The analysis of the limitations of the current financial statements[J].
[4] Li Baozhong. How to view the information revealed by the enterprise financial statements[J]. The newest version of this article will be published in the next issue of the Journal of the American Academy of Arts and Sciences (AAAS).
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