Basic financial ratios for analyzing the activities of an enterprise. Analysis of financial indicators and ratios Analysis of current financial indicators

Financial ratios reflect the relationships between various reporting items (revenue and total assets, cost and accounts payable, etc.).

The analysis procedure using financial ratios involves two stages: the actual calculation of financial ratios and their comparison with basic values. The industry average values ​​of the coefficients, their values ​​for previous years, the values ​​of these coefficients for the main competitors, etc. can be selected as the basic values ​​of the coefficients.

The advantage of this method is its high “standardization”. All over the world, the main financial ratios are calculated using the same formulas, and if there are differences in the calculations, then such ratios can be easily converted to generally accepted values ​​using simple transformations. In addition, this method allows us to exclude the influence of inflation, since almost all coefficients are the result of dividing some reporting items by others, i.e., not the absolute values ​​appearing in the reporting are studied, but their ratios.

Despite the convenience and relative ease of use of this method, financial ratios do not always make it possible to unambiguously determine the state of affairs of the company. As a rule, a strong difference between a certain coefficient and the industry average or from the value of this coefficient at a competitor indicates the presence of an issue that requires more detailed analysis, but does not indicate that the company clearly has a problem. A more detailed analysis using other methods may reveal the presence of a problem, but it may also explain the deviation of the coefficient by features of the enterprise’s economic activities that do not lead to financial difficulties.

Various financial ratios reflect certain aspects of the activity and financial condition of the enterprise. They are usually divided into groups:

• * liquidity ratios. Liquidity refers to the company's ability to repay its obligations on time. These ratios operate on the ratio of the values ​​of the company's assets and the values ​​of short-term and long-term liabilities;
• * coefficients reflecting the efficiency of asset management. These coefficients serve to assess the compliance of the size of certain company assets with the tasks performed. They operate with such quantities as the size of inventories, current and non-current assets, accounts receivable, etc.;
• * coefficients reflecting the company's capital structure. This group includes coefficients that operate on the ratio of equity and borrowed funds. They show from what sources the company’s assets are formed, and how financially the enterprise depends on creditors;
• * profitability ratios. These ratios show how much income a company generates from its assets. Profitability ratios allow for a comprehensive assessment of the company’s activities as a whole, based on the final result;
• * market activity coefficients. The coefficients of this group operate with the ratio of market prices for the company's shares, their nominal prices and earnings per share. They allow you to assess the company's position on the securities market.

Let us consider these groups of coefficients in more detail. The main liquidity ratios are:

• * current (total) liquidity ratio (Current ratio). It is defined as the quotient of the size working capital company on the amount of short-term liabilities. Working capital includes cash, accounts receivable (less doubtful), inventories and other quickly salable assets. Current liabilities consist of accounts payable, short-term accounts payable, accruals for wages and taxes and other short-term liabilities. This ratio shows whether the company has enough funds to pay its current obligations. If the value of this ratio is less than 2, then the company may have problems paying off short-term obligations, expressed in delayed payments;
• * Quick ratio. In essence, it is similar to the coefficient current liquidity, but instead of the full amount of working capital, it uses only the amount of working capital that can be quickly converted into money. The least liquid part of working capital is inventory. Therefore, when calculating the quick ratio, they are excluded from current assets. The ratio shows the company's ability to pay off its short-term obligations in a relatively short time. It is believed that for a normally functioning company its value should be in the range from 0.7 to 1;
• * absolute liquidity ratio. This ratio shows what portion of short-term liabilities the company can pay off almost instantly. It is calculated as the quotient of dividing the volume of cash in the company's accounts by the volume of short-term liabilities. Its value is considered normal in the range from 0.05 to 0.025. If the value is below 0.025, then the company may have problems paying off current obligations. If it is more than 0.05, then perhaps the company is using available funds irrationally.

To assess the effectiveness of asset management, the following coefficients are used:

• * Inventory turnover ratio. It is defined as the quotient of dividing sales revenue for the reporting period (year, quarter, month) by the average amount of inventory for the period. It shows how many times during the reporting period inventories were transformed into finished products, which, in turn, were sold, and inventories were again purchased with proceeds from sales (how many “turnovers” of inventories were made during the period). This is the standard approach to calculating inventory turnover ratio. There is an alternative approach based on the fact that products are sold at market prices, which leads to an overestimation of the inventory turnover ratio when using sales revenue in its numerator. To eliminate this distortion, instead of revenue, you can take the cost of products sold for the period or, which will give an even more accurate result, the total amount of expenses of the enterprise for the period for the purchase of inventory. The inventory turnover ratio greatly depends on the industry in which the company operates. For Internet companies, it is usually higher than for ordinary enterprises, since most Internet companies operate in the online retail or service industries, where turnover is usually higher than in manufacturing;
• * asset turnover ratio (Total asset turnover ratio). It is calculated as the quotient of dividing the sales revenue for the period by the total assets of the enterprise (average for the period). This ratio shows the turnover of all company assets;
• * accounts receivable turnover. It is calculated as the quotient of dividing sales revenue for the reporting period by the average amount of accounts receivable for the period. The ratio shows how many times during the period receivables were generated and repaid by customers (how many “turnovers” of receivables occurred). A more clear version of this ratio is the average period for repayment of receivables by customers (in days) or the average time for receiving payment (Average Collection Period, ACP). To calculate it, the average accounts receivable for the period is divided by the average sales revenue for one day of the period (calculated as revenue for the period divided by the length of the period in days). ACP shows how many days, on average, pass from the date of shipment of products to the date of receipt of payment. The current practice of Internet companies in Russia, as a rule, does not provide for deferred payment to customers. For the most part, Internet companies operate on a prepaid or pay-at-delivery basis. Thus, for the majority of Russians network enterprises the ACP indicator is close to zero. As Internet business develops, this figure will increase;
• * accounts payable turnover ratio. It is calculated as the quotient of dividing the cost of products sold for the period by the average amount of accounts payable for the period. The ratio shows how many times during the period accounts payable arose and were repaid;
• * capital productivity ratio or fixed asset turnover (Fixed asset turnover ratio). It is calculated as the ratio of sales revenue for the period to the cost of fixed assets. The ratio shows how much revenue each ruble invested in the company’s fixed assets generated during the reporting period;
• * equity capital turnover ratio. Equity refers to the total assets of a company minus liabilities to third parties. Equity consists of the capital invested by the owners and all profits earned by the company, minus taxes paid on profits and dividends. The coefficient is calculated as the quotient of dividing sales revenue for the analyzed period by the average equity capital for the period. It shows how much revenue each ruble of the company's equity brought in during the period.

The company's capital structure is analyzed using the following ratios:

• * share of borrowed funds in the asset structure. The ratio is calculated as the quotient of the volume of borrowed funds divided by the total assets of the company. Borrowed funds include short-term and long-term obligations of the company to third parties. The ratio shows how dependent the company is on creditors. The normal value of this coefficient is about 0.5. In addition to this coefficient, the financial dependence coefficient is sometimes calculated, defined as the quotient of dividing the volume of borrowed funds by the volume own funds. A level of this coefficient exceeding one is considered dangerous;
• * security of interest payable, TIE (Time-Interest-Earned). The coefficient is calculated as the quotient of profit before interest and taxes divided by the amount of interest payable for the analyzed period. The ratio demonstrates the company's ability to pay interest on borrowed funds.

Profitability ratios are very informative. Of these, the most important are the following:

• * profitability products sold(Profit margin of sales). It is calculated as the quotient of net profit divided by sales revenue. The coefficient shows how many rubles of net profit each ruble of revenue brought in;
• * return on assets, ROA (Return of Assets). It is calculated as the quotient of net profit divided by the amount of the enterprise's assets. This is the most general ratio that characterizes the efficiency of a company’s use of the assets at its disposal;
• * return on equity, ROE (Return of Equity). Calculated as the quotient of net profit divided by the amount of simple share capital. Shows the profit for every ruble invested by investors;
• * income generation coefficient, BER (Basic Earning Power). It is calculated as the quotient of earnings before interest and taxes divided by the company's total assets. This ratio shows how much profit per ruble of assets the company would earn in a hypothetical tax-free and interest-free situation. The coefficient is convenient for comparing the performance of enterprises that are in different tax conditions and have different capital structures (the ratio of equity and borrowed funds).

The coefficients of an enterprise's market activity make it possible to assess the company's position on the securities market and the attitude of shareholders to the company's activities:

• * stock quote ratio, M/B (Market/Book). It is calculated as the ratio of the market price of a share to its book value;
• * income per ordinary share. It is calculated as the ratio of dividend per ordinary share to the market price of the share.

One of the simple tools that allows you to focus on the most important areas of the enterprise’s activities and compare performance results various enterprises, is financial ratio analysis, which uses the calculation of financial ratios as a starting point for interpreting the financial performance of an enterprise.

Analysis of financial ratios is used to control economic activity enterprises and to identify strong and weaknesses enterprise relative to competitors, as well as when planning the enterprise’s activities for the future.

The calculation of financial ratios focuses primarily on three key areas of business: profitability (managing the buying and selling process); resource utilization (asset management); investor income.

Financial indicators such as resource efficiency and profitability show the opportunities that ensure the efficiency of the enterprise’s economic activities, that is, the highest return with the minimum possible amount of investment and a reasonable degree of risk.

The asset turnover ratio shows the sales volume for each ruble invested by the investor in the reporting period under review and is calculated using the following formula:

Asset turnover ratio = Sales volume / Total net assets,

where, total net assets = non-current assets + current assets - current liabilities.

The asset turnover ratio can be influenced by changing either the sales volume (using marketing activities), or the amount of invested capital (by changing the structure of the enterprise's short-term capital or by changing investments in non-current assets).

Liquidity. This is an indicator of the company's ability to pay off short-term obligations using current assets. Liquidity is analyzed using two financial ratios: the current ratio and the quick ratio.

The current ratio is calculated using the following formula: Current ratio = Current assets / Current liabilities.

The current ratio shows the relationship between the value of a company's current assets, which are liquid in the sense that they can be converted into cash in the next financial year, and debt, which must be repaid in the same financial year.

The optimal amount of liquidity is determined by the economic activities of the enterprise. Most industrial enterprises The current ratio remains relatively high level, since inventories mainly consist of raw materials, semi-finished products and finished products. Therefore, if necessary, it is difficult to quickly sell them at full cost.

The quick liquidity ratio is calculated using the following formula: Quick liquidity ratio = (Current assets - Inventories) / Current liabilities.

The quick ratio shows how much of the debt can be repaid in short term at the expense of current assets, if it is not possible to convert inventories into cash.

Accounts receivables turn into cash in a relatively short period of time. Therefore, most likely, all receivables will be repaid. But it can take a long time for inventory to move through production, sale, and into accounts receivable. And enterprising buyers will not miss the opportunity to purchase goods at reduced prices, taking advantage of the desperate situation of the seller.

An acceptable value for the quick liquidity ratio is in the range from 0.8 to 1.2.

Financial institutions providing lending services have difficulty assessing the liquidity of inventories and feel more confident when working only with accounts receivable and cash. Therefore, the quick ratio is more popular than the current ratio.

The profitability of an enterprise is the ratio of actual profit to sales volume. Using the profit and loss account, two indicators of enterprise profitability are calculated: net margin and gross margin.

Net Margin is calculated using the following formula: Net Margin = (Net Profit / Sales Volume) x 100%.

Net margin shows what share of sales volume remains with the enterprise in the form of net profit after covering the cost of products sold and all expenses of the enterprise. This indicator can serve as an indicator of the acceptable level of profitability at which the enterprise does not yet suffer losses. Net margin can be influenced pricing policy enterprise (gross margin and markup) and cost control.

Gross Margin is calculated using the following formula: Gross Margin = (Gross Profit / Sales Volume) x 100%.

There is an inverse relationship between gross margin and inventory turnover: the lower the inventory turnover, the higher the gross margin; The higher the inventory turnover, the lower the gross margin.

Manufacturers must provide themselves with higher gross margins compared to trade, since their product spends more time in production process. Gross margin is determined by pricing policy.

Differences in the accounting policies of enterprises, the principle of accounting at cost, the lack of acceptable comparable data, differences in the operating conditions of enterprises, changes in the purchasing power of money, intra-annual fluctuations in accounting information - all this imposes restrictions on the possibilities of analyzing ratios. When analyzing coefficients, the qualitative characteristics of goods and services are not taken into account, work force, labor relations.

It is impossible to evaluate the entire set of coefficients considered until a detailed analysis or comparison of these indicators is carried out with the previous results of the enterprise and with standard indicators for the industry as a whole. Therefore, caution should be exercised in interpreting financial indicators and do not make hasty conclusions without complete information about the enterprise and the industry as a whole.

Although financial ratios are subject to the influence of conventions that arise when using accounting calculations or valuation methods, taken together these indicators can prepare the basis for further analysis of the enterprise's activities.

This note was written as part of the course preparation

Let me start with a small philosophical digression... :) Our organizations are very complex, i.e. entities that, as a result of the interaction of parts, can maintain their existence and function as whole. Systems that function as a whole have properties that differ from the properties of their constituent parts. These are known as emergent properties. They "emerge" when the system is running. By dividing a system into components, you will never discover its essential properties. The only way to know what emergent properties are is to make the system work. Emergent properties cannot be measured by any of our senses. They only measure manifestation emergent properties. In this regard, distortions are possible if you limit yourself to measuring only one or several parameters.

From the above, it becomes clear why the company’s work cannot be characterized by a small number (let alone one!) indicator. Success is an emergent property that cannot be measured by profit, profitability, market share, etc. All these parameters characterize success to one degree or another. However, the financial indicators we will now look at are typical indicators of success. With my philosophical digression, I only wanted to warn against making this or that indicator absolute, as well as against introducing a management system based on a small number of indicators.

Profitability (profitability) indicators

Sales margin= (Sales income – (minus) Cost of products sold) / Sales income (Fig. 1)

Rice. 1. Sales margin

Download the note in format, examples in format

It is clear that the sales margin depends on both trade margin, and on what expenses we attribute to the cost price. Most relevant in terms of adoption management decisions, is an approach when the cost includes only the full variable expenses(for more details see and).

Operating expenses= Cost of goods sold + Selling expenses + Administrative expenses
Sales profit = Sales income – Operating expenses

Profitability of core activities= Profit from sales / Income from sales (Fig. 2).

Rice. 2. Profitability of core activities (or profitability of sales)

The results of unusual transactions should not be included in income and expenses so as not to distort the indicators of core activities (in the example, “other expenses” and “other income” are not included in the calculation of the parameter).

Performance indicators

Sales profit (also known as operating profit or profit from operations) is the profit on the assets of all those who contributed to those assets, therefore this profit belongs to those who provided the assets and must be distributed among them. The efficiency (profitability, profitability) of using assets can be determined by dividing one of the profit indicators (Fig. 3a) by one of the balance sheet indicators (Fig. 3b).

Rice. 3. Four types of profit (A) and three types of assets (B)

Two indicators are considered the most relevant.

Return on equity ratio(Return On Equity, ROE) = Net profit (profit after taxes, see (4) in Fig. 3a) / Average annual value of equity (shareholder) capital (see Fig. 3b). ROE shows the return on shareholders' equity.

Return on total assets ratio(Return On Total Assets, ROTA) = operating profit (or profit before interest and taxes, see (1) in Fig. 3a) / Average annual value of total assets (see Fig. 3b). ROTA measures a company's operating efficiency.

For the convenience of managing the return on total assets, management breaks the ROTA ratio into two parts: return on sales and turnover of total assets:

ROTA= Return on sales * Turnover of total assets

Here's how this formula comes about. A-priory:

Return on sales and turnover of total assets are not the most convenient operating indicators, since they cannot be influenced directly; each of them depends on the totality of individual results obtained in different areas of activity. To achieve the desired values ​​of these two indicators, you can use a system of lower level indicators.

To increase profitability, they usually increase sales margins and also reduce operating expenses, including:

• Direct costs for materials and wages
• Manufacturing overhead
• Administrative and commercial expenses

To increase the turnover of total assets, increase the turnover:

• Inventory (warehouse)
• Accounts receivable

Turnover indicators

For trading companies characterized by a significant share of current assets. For example, the company's statements, which we use for illustration (Fig. 4), show that the share of equity capital in 2010 was only 3% (2276 / 75,785). It is clear why so much attention is paid to the optimization of current assets.

Accounts receivable turnover= Accounts receivable * 365 / Revenue,
that is, the average duration of loans (in number of days) issued to customers.

Inventory turnover= Inventories * 365 / Cost of goods sold,
that is, the average number of days of inventory storage from the moment of receipt from suppliers until the moment of sale to customers

Accounts payable turnover= Accounts payable * 365 / Cost of goods sold,
that is, the average duration of loans (in days) provided by suppliers.

Along with turnover (in days), turnover ratios are used, showing how many times the asset “turned around” during the year. For example,

Accounts receivable turnover ratio= Revenue / Accounts receivable

In our example, the accounts receivable turnover ratio in 2010 was = 468,041 / 15,565 = 30.1 times. It can be seen that the product of turnover in days and the turnover ratio gives 365.

Rice. 4. Turnover indicators

Turnover indicators (Fig. 4) mean that in 2010 the company on average needed to finance the cash gap, which was 23 days (Fig. 5).

Rice. 5. Cash flow cycle

Rice. 6. Calculation of the quick liquidity ratio

Economic added value

Recently, the concept of economic value added (EVA) has become popular:

EVA= (Profit from ordinary activities – taxes and other mandatory payments) – (Capital invested in the enterprise * Weighted average cost of capital)

How to understand this formula? EVA is the enterprise’s net profit from ordinary activities, but restored (that is, increased) by the amount of interest paid for the use of borrowed capital, and then reduced by the amount of the fee for all capital invested in the enterprise. And this last [payment] is determined by the product of the invested capital by its weighted average cost. Why is interest added to net profit for the use of borrowed capital? Because this interest will later be deducted as part of the fee for the entire capital invested. What capital is considered invested? Some analysts believe that only the capital that needs to be paid for, that is, equity and debt. Other analysts believe that all capital, including loans received from suppliers of goods.

Where does the weighted average cost of capital (WACC) come from? Some analysts believe that WACC should be determined by the market value of similar investments. Others are that you need to calculate the WACC based on the exact numbers of a specific company. Last way, unfortunately, implements the principle of planning “from what has been achieved.” The higher the return on equity, the higher the WACC, the lower the EVA. That is, by achieving higher profitability, we increase shareholder expectations and reduce EVA.

There is ample evidence that EVA is the performance measure most closely associated with shareholder value. Creating value requires management to be careful with both profitability and capital management. EVA can serve as a measure of management quality (but don't forget the philosophical digression made at the beginning of this section).

Indicators calculated based on financial statements, and Russian specifics

If the data management accounting, as a rule, relevantly reflect the financial position of the company, then when analyzing accounting forms, you need to be aware of which indicators reflect the real state of affairs, and which are elements of tax evasion schemes.

To understand how accounting forms (and financial indicators based on them) are distorted, here are several typical schemes for illegal tax optimization:

• Inflating the purchase price (with a kickback), which affects the decrease in sales margins and, further down the chain, the net profit
• Reflection of fictitious contracts that increase administrative and commercial expenses and reduce taxable profit
• Fictitious warehouse purchases or purchases of services that exist only on paper (for which payment is not provided), significantly worsen inventory turnover, accounts payable, and liquidity.

There are many connections between different elements financial statements, as well as between the same elements, but at different points in time. Ratios (indicators) are a useful way of expressing these relationships. They express one quantity in relation to another (usually as the proportion of one element to another).

In simple words: Coefficient is a number(s) divided by another number(s).

Famous Scientific research have focused on the importance of ratios in predicting stock returns (Ou and Penman, 1989b; Abarbel and Buschsche, 1998) or assessing creditworthiness (Altman, 1968; Olson, 1980; Hopwood et al., 1994). These studies have shown that financial statement ratios are effective in selecting investment direction and in predicting financial distress. Practitioners routinely use metrics to display the value of a company and its securities.

Several aspects of indicator analysis are important for understanding them. Firstly, the calculated coefficient is not an "answer". An indicator is an indicator of some aspect of a company's performance, saying what happened, but not why it happened. For example, an analyst may need to answer the question: Which of two companies was more profitable? Net profit margin, which expresses profit relative to revenue, can provide insight into this issue. Return on sales based on net profit (net profit margin) is calculated by dividing net profit by revenue:

Net profit / Revenue

Let's assume that company A has 100,000 thousand rubles. net profit and 2 billion rubles. revenue, and thus the profitability is 100/2000 * 100% = 5 percent. Company B has 200,000 thousand rubles. net profit and 6 billion in revenue, and thus a return on sales of 3.33 percent. By expressing net profit as a percentage of income, the relationship can be precisely defined: for every 100 rubles of income, company A earns 5 rubles in net profit, while company B receives only 3.33 rubles for every 100 rubles of income. So now we can answer the question of which company was more profitable in percentage terms: Company A was more profitable because it had a higher net profit of 5 percent. Note also that company A was more profitable despite the fact that company B reported a higher profit (RUB 200,000 thousand versus RUB 100,000 thousand). However, this figure by itself does not tell us why Company A has a higher profit margin. Further analysis is necessary to determine the cause (possibly more high prices on products or better cost control).

Company size sometimes produces economies of scale, so absolute amounts of net income and revenue are useful in financial analysis. However, the indicators reduce the impact of enterprise size, which allows you to compare companies with each other, as well as compare the company's performance compared to the same indicator in the past.

The second important aspect of performance analysis is that differences in accounting policies(across the entire company and over time) can skew ratios, so sometimes additional adjustments to financial data may be necessary when making comparisons. Third, not all indicators need to be applied to a specific analysis. The ability to select the appropriate coefficient or coefficients to answer a research question is an important analytical skill. Finally, as with financial analysis in general, ratio analysis does not become a simple calculation; interpretation of the results is important. In practice, differences in performance over time and between companies may be subtle, so the interpretation of performance must be tailored to the specific situation.

Financial indicators, as a rule, are expressed in percentages, times, days, rubles or without a unit of measurement. The following indicators are financial indicators of the enterprise:

1. Liquidity ratios(short-term solvency), which measure the firm’s ability to meet its current obligations (within one current year). They may include ratios that measure the efficiency of current assets and current liabilities.

2. Ability indicators be responsible for debts(financial stability and long-term solvency) - ratios that allow you to measure the degree of protection of suppliers of long-term financial resources (that is, long-term creditors of the enterprise).

3. Profitability ratios measure a firm's earning power.

4. Business activity indicators talk about how efficiently assets are used.

5. Cash flow ratios may indicate liquidity, creditworthiness, or profitability.

6. Indicators of property status measure the condition of assets, their structure and mobility.

The indicator can be calculated from any pair of numbers. Given the large number of variables in financial statements, it is possible to construct a very long list of significant ratios. There is no standard list of coefficients or a standard way to calculate them. Each financial analysis author and source uses a different list and often has a different way of calculating the same proportion. This site provides the opportunity to calculate the indicators that are used most often. When analyzing ratios, the analyst is sometimes faced with negative earnings figures. Analyzing coefficients that have negative numerators or denominators is meaningless, and the negative sign of the coefficient should simply be noted in the conclusions.

Indicators are interpreted in comparison with the indicator for the previous year, competitors’ coefficients, industry coefficients and specified standards (normative values). Analysis of a company's financial statements is more meaningful if the results are compared with industry averages and with the results of competitors. The use of several methods of financial analysis allows you to form a comprehensive opinion about financial condition enterprises and various industries.

The analyst is faced with a problem when it is not clear which industry the company should belong to due to its diversified activities. Because many companies do not fit into just one industry, it is often necessary to use the industry that best fits the firm for comparison. In the process of financial analysis, it is important to remember that methods accounting at enterprises of the same industry may differ. Therefore, it is important to read the notes to the financial statements or statement of accounting policies or other document that reflects this aspect. Ideally, all types of comparisons should be used in the financial analysis process. Analyzing trends, industry averages, and comparisons with key competitors supports the drawing of conclusions and provides a solid basis for analysis.

Comparison of companies various sizes may be more complex than comparing firms of the same size. For example, large firms often have access to wider and more sophisticated capital markets and can buy in large quantities raw materials, and serve wider markets. Ratios, vertical and horizontal analysis will help eliminate some of the problems associated with using absolute numbers. Be careful when analyzing firms of different sizes. Differences between companies can be seen by looking at the relative size of sales, assets or profits.

Using percentages is generally preferable to using absolute numbers. Let's give an example. If company A earns 10,000 thousand rubles and company B earns 1,000 thousand rubles, which of them works more efficiently? Firm A is probably your answer? However, the total value of the invested capital of the owners in company A is 1 billion rubles, and in company B is 10,000 thousand rubles. Therefore, firm B is significantly more efficient. As a result, the analysis of relative indicators allows you to compare firms of different sizes in a much more qualitative and balanced way.

Indicator trend and its variability are also important aspects to consider in financial analysis.

Comparing the income statement and balance sheet as financial measures can create difficulties due to the timing of financial reporting. Specifically, the income statement covers the entire financial period; while in a balance sheet the numbers refer to one point in time, namely the end of the period. Ideally In order to compare profits and losses to numbers on the balance sheet, such as accounts receivable, we must know the average accounts receivable for the entire year (that is, in each individual month). However, this data is not available to an external analyst. In most cases, the analyst uses the average, taking into account the values ​​at the beginning and end of the year. This approach smoothes out changes from start to finish, but it does not eliminate the problem associated with seasonal and cyclical changes. It also does not reflect changes that occur unevenly throughout the year. In general, a ratio taking into account the average based on the beginning and end of the year will tend to be a fairly accurate value.

Characteristics of indicators

Formulas and even coefficient names are often vary depending on the analyst or databases. The number of different odds that can be created is virtually limitless. There are, however, widely accepted ratios that have been found useful. However, the analyst should keep in mind that some industries have developed unique measures based on the characteristics of that industry. When faced with an unfamiliar metric, the analyst can study the formula behind the metric to get an idea of ​​what the ratio measures. For example, consider the following formula:

Operating profit / Average annual cost assets

Having never seen this ratio before, an analyst might ask whether a result of 12 percent is better than 8 percent. The answer can be found in the ratio itself. The numerator is operating profit and the denominator is average total assets, so the ratio can be interpreted as the amount of operating profit per unit of assets. If a company generates 12 rubles of operating profit for every 100 rubles of assets, then this is better than creating 8 rubles of operating profit. In addition, it is obvious that this indicator is an indicator of profitability (and, to a lesser extent, the efficiency of using assets in generating profit). When confronted with the indicator for the first time, the analyst must evaluate the numerator and denominator, which will allow him to evaluate the company itself.

The ratio of operating income to average assets for the year, which is shown above, is one of many variations of the return on assets ratio (ROA). It should be noted that there are other ways to display this formula, for example depending on how assets are defined. Some practitioners suggest calculating ROA using ending asset value (the value of assets at the end of the year) rather than using average assets.

In some cases, you can also see the value of assets at the beginning of the year in the denominator. Which one is right? It depends on what you are trying to measure and what the company's underlying trends are. If the company has a stable level of assets, then the answer will not differ much across the three asset indicators (at the beginning, on average, at the end of the study period). If, however, assets rise or fall, the results will differ. When assets grow, operating income divided by assets will not be meaningful because some of the income would have been generated before the new assets were acquired. This would lead to an understatement of the company's performance.

Likewise, if initial assets are used, then a portion of the operating income will be generated later in the year using the newly acquired assets. Thus, the indicator will overestimate the company's efficiency. Since operating profits are generated over the entire period, it usually makes sense to use some average measure of assets.

General rule is that if the numerator uses data from the report on financial results or cash flow statement, and the denominator is from the balance sheet, it is advisable to use the average annual balance sheet indicators. There is no need to do this if both numbers when calculating the ratio are taken from the company’s balance sheet, since both are determined as of the same date.

If an average is used, then you also need to decide what type of average to use. For simplicity, most practitioners use a simple average, taking into account the value at the beginning and end of the operating year. If a company's business is seasonal, causing asset levels to vary across time periods (semi-annual or quarterly), then it is worth taking an average over all interim periods, if any (if the analyst works for the company and has access to monthly data, then it is worth using them).

Let us summarize that in general the process of calculating financial ratios depends on the goals that the analyst faces.

Meaning, goals and limitations of the indicator method

The value of ratio analysis is that it allows a credit or stock analyst to evaluate the past performance of an enterprise, consider the current financial position of the company, and also gain insight into future results useful for forecasting. As noted above, the indicator itself is not the answer, but is an indicator of some aspect of the company's activities. Financial indicators provide insight into such aspects:

• microeconomic relationships within a company that help analysts project earnings and free cash flow.
• A company's financial flexibility, or ability to obtain the cash it needs to grow and meet its obligations even if unexpected circumstances arise.
• management abilities of management.

There are also restrictions indicator method:

• homogeneity of the company's operating activities. Companies may have divisions operating in different sectors of the economy. This can make it difficult to compare a company's ratios to market averages. In this case, it is worth considering the performance of individual business units.
• the need to determine whether the results of the indicator analysis are consistent. One set of ratios may indicate a problem, while another set of ratios may indicate that the potential problem is only short-term.
• the need to use judgment. The key question is whether the company's performance is within reasonable limits. Although financial ratios are used to help evaluate a company's growth potential and risks, they cannot be used in isolation to directly evaluate a company, its securities or its creditworthiness. It is necessary to study the entire activity of the enterprise, as well as the external economic and industry conditions in which it operates. This will allow you to correctly interpret the values ​​of financial ratios.
• use of alternative accounting methods. Companies often have some wiggle room when choosing certain accounting methods. Ratios taken from the financial statements and to which different accounting treatments have been applied may not be comparable without further adjustments. Several important aspects of accounting include the following:

Inventory cost accounting method, for example, FIFO;

Costs or methods of equity participation for unconsolidated subsidiaries of a company;

Depreciation calculation method;

Valuation of fixed assets when purchasing or leasing them.

Given this, it can be argued that there are a number of accounting decisions that the analyst should consider.

Sources of odds

Ratios can be calculated using the data directly from financial statements companies or from a database. These databases are popular because they provide easy access to a lot of historical data so you can look at trends over time. For example, some financial indicators can be calculated based on materials Federal service state statistics.

Analysts should be aware that the basic formulas may differ when using third-party data. The formula used must be obtained before the analysis begins, and the analyst must determine whether any adjustments are needed. Additionally, database providers often use judgment when classifying items.

For example, operating income may not appear directly on a company's financial statements, and the database provider may use judgment to classify the definition of measures as "operating" or "non-operating" income. Differences in such judgments could affect any calculation involving operating income. Therefore, it is good practice to use the same data sources when comparing different companies or when evaluating the historical record of one company. Analysts should check the consistency of the classification formulas and data.

Main groups of financial ratios

Because of large quantity coefficients, it is useful to think about indicators in terms of which group they belong to.

The use of various groups of indicators allows you to form an opinion about the general financial condition of the company at the current moment, and also ratio analysis can become the basis for predicting the future financial situation enterprises.

These categories are not mutually exclusive; Some ratios can be used to measure various aspects of a business. For example, accounts receivable turnover, which belongs to the group of indicators business activity, measures how quickly a company collects accounts receivable, but is also useful in assessing a company's liquidity since revenue collection increases cash flow.

Some profitability ratios also reflect the operating efficiency of a business. Thus, analysts appropriately use certain ratios to evaluate various aspects of a business. They should also keep abreast of changes in industry practices when calculating financial ratios.

2. Industry norms(analysis by industry). A company can be compared to others in its industry by relating its financial performance to industry norms or to a subset of companies in the industry. When industry standards are used to make judgments, care must be taken because:

• Many indicators are specific to individual industries and not all indicators are important for all industries.
• Companies may have several various directions business. This will cause the aggregate financial figures to be distorted. It is better to study the indicators by type of business.
• There may be differences in the accounting methods used by companies, which may distort financial results.
• There may be differences in corporate strategies, which may affect certain financial ratios.

3. Economic conditions. For cyclical companies, financial performance tends to improve during a strong economy, but it can weaken during an economic downturn. Therefore, financial performance should be viewed in light of the current phase of the business cycle.

List of sources used

Thomas R. Robinson, International financial statement analysis / Wiley, 2008, 188 pp.

Kogdenko V.G., Economic analysis / Tutorial. - 2nd ed., revised. and additional - M.: Unity-Dana, 2011. - 399 p.

Buzyrev V.V., Nuzhina I.P. Analysis and diagnostics of financial and economic activities construction company/ Textbook. - M.: KnoRus, 2016. - 332 p.

To evaluate financial analysis, enterprises use a system of indicators included in the following groups:
1) liquidity ratios;
2) profitability ratios;
3) market activity coefficients;
4) financial stability coefficients;
5) business activity ratios.

Liquidity ratios.
Liquidity is the ability of an enterprise to meet its short-term obligations (up to 12 months). If current assets (current assets) exceed short-term liabilities, then the enterprise is liquid. To measure liquidity, a system of coefficients is used. Consider the most important:
1) Total liquidity ratio = (Current assets)/(total liabilities)
The indicator gives a general assessment of the liquidity of assets, showing how many rubles of current assets account for 1 ruble of current liabilities. The value of the indicator may vary in different industries; its dynamic growth is considered as a positive trend. Meaning - the company is recommended to have working capital 2 times more than its short-term accounts payable
2) Quick Ratio = (Current Inventories - Inventories)/(Current Current Liabilities)
The indicator must be greater than 1. The meaning of the criterion is that the company must strive to ensure that the amount of credit provided to customers (accounts receivable) does not exceed the amount of accounts payable. An increase in the indicator is a positive trend if it is not associated with an unreasonable increase in accounts receivable. If the growth of this indicator is associated with an unjustified increase in accounts receivable, then this does not characterize the activity of the enterprise with positive side.
3) absolute liquidity ratio = (current assets)/(current liabilities)
The absolute liquidity ratio must be greater than 0.2. The ratio shows what part of short-term liabilities, if necessary, can be repaid immediately.
4) The value of own working capital (SOS) = Current assets – Short-term liabilities
The value of own working capital (SOS) = current assets - short-term liabilities. This indicator shows how much current assets will remain at the disposal of the enterprise after settlement of short-term liabilities. If he Profitability ratios.
1) Return on Equity = Net Profit / Shareholders' Equity
2) Return on advance capital = Net profit / Advance capital
3) Return on assets = Net profit / Average annual value of assets
4) Sales profitability indicator = Net profit / Sales revenue

Efficiency ratios characterize the efficiency of using material and financial resources enterprises.
1) Asset turnover = Sales revenue / Assets
2) Accounts receivable turnover = Sales revenue / Average accounts receivable
3) Credit debt turnover = (Average credit debt / Cost) × 360 days
The answer is in days.
4) Inventory turnover in turnover = Cost of sales / Average inventories

Indicators of financial stability.
1) Equity concentration ratio (sustainability ratio) = Equity capital / Total economic assets advanced to the activities of the enterprise (assets)
Must be greater than 0.6. The growth of the indicator is a positive trend. It characterizes the share of ownership of the owners of the enterprise in total amount funds advanced for its activities.
2) Financial stability ratio = Total business assets / Equity capital)
A decrease in the indicator is a positive trend. If the coefficient = 1, then the owners fully finance their enterprise; if it = 0.25, then for every 1 rub. 25 kopecks invested in assets, 25 kopecks borrowed.
3) Concentration factor borrowed capital= Borrowed capital / Total business assets (assets)
A decrease is a positive trend.
4) Equity concentration ratio + Debt capital concentration ratio = 1
5) Long-term investment structure coefficient = Long-term liabilities / Non-current assets
Shows what part of fixed assets and other non-current assets is financed by external investors, that is, belongs to them and not to the owners of the enterprise.
6) Long-term gearing ratio = Long-term liabilities / (Long-term liabilities + equity))
It characterizes the capital structure. Growth in dynamics is a negative trend, as it means that the company is increasingly dependent on external investors.
7) Gearing Ratio = Equity / Debt (Current Liabilities)
Dynamic growth is a positive trend. An enterprise in a general sense is considered solvent if the value of its total assets exceeds the value of external liabilities.
8) Level of financial leverage = Long-term borrowed funds/ Equity
Characterizes how many rubles of borrowed capital are per 1 ruble. own funds. The higher the value, the higher the risk associated with the company.

Indicators of the enterprise's market activity.
The indicators of this group characterize the results and effectiveness of the current main production activities. An assessment of business activity at a qualitative level can be obtained by comparing activities of this enterprise and related enterprises in the field of capital application. Such qualitative criteria are: the breadth of markets for products, the reputation of the enterprise, etc. Quantitative assessment is given in two directions:
– the degree of implementation of the plan for key indicators, ensuring the specified rates of their growth;
– level of efficiency in the use of enterprise resources.

1) Earnings per share = (Net income – Amount of dividends on preferred shares) / Total number of ordinary shares outstanding
2) The ratio of the market price of a share and profit per 1 share = Market value / Profit per 1 share
3) Book value per share = (Equity value – Preferred share value) / Number of shares outstanding
4) Ratio of market and book value of a share = Market value / Book value
5) Current share yield = Dividend per 1 share / Market price 1 shares
6) Final share yield = (Dividend per share + (Purchase price - Sale price)) / Market price or purchase price
7) Share of dividends paid = Dividend per 1 share / Net profit per 1 share(less than 1)

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