Why and who needs financial analysis
Defining the boundaries of financial sustainability of enterprises is one of the most important problems in a market economy. Inadequate financial stability may lead to a lack of funds to finance current or investment activities, while excessive financial stability will impede development, increasing the time of capital turnover and reducing profits. Justify the parameters of such sustainability allows financial analysis. It not only provides an opportunity to judge the situation of the enterprise at the moment, but also serves as the basis for developing strategic decisions that determine the prospects for the development of the company.
Managing any object requires first of all knowledge of its initial state, information about how the object existed and developed in the periods preceding the present. Only after receiving sufficiently complete and reliable information about the object’s activities in the past, about the current trends in its functioning and development, you can develop confident management decisions, business plans and programs for the development of objects for future periods. The stated provision applies to enterprises, firms, regardless of their role, scale, type of activity, form of ownership.
In a market economy, it is especially important to determine the financial stability of enterprises, that is, the state of financial resources in which the company can freely maneuver in cash so that through their efficient use they ensure an uninterrupted process of production and sales of products, as well as incur costs to expand and update the production base.
Defining the boundaries of financial sustainability of enterprises is one of the most important problems in a market economy. Insufficient financial stability can lead to the insolvency of organizations, to a shortage of funds to finance current or investment activities, to bankruptcy, and excessive financial stability will impede development, leading to the emergence of excess reserves and reserves, increasing the terms of capital turnover and reducing profits.
Justify the parameters of such sustainability allows financial analysis. Such an analysis not only makes it possible to judge the situation of the enterprise at the moment, but also serves as the basis, a necessary prerequisite for developing strategic decisions that determine the prospects for the development of the company.
We also note that where there is a high culture of enterprise management, any annual and even quarterly report on the activities of the enterprise is accompanied by a financial analysis of its activities.
Analysis of the financial and economic activities of enterprises is associated with the processing of extensive information characterizing the most diverse aspects of the functioning of the enterprise as a production, financial, property, social complex. Most often, these data are concentrated in financial reporting documents, the balance sheet of the enterprise, accounting statements. Thus, the documentary and informational basis for the analysis of the financial condition and economic activity of enterprises is accounting data. These data themselves allow us to make a judgment about the state of affairs at the company, but a deep analysis also requires processing.
As you know, business accounting is conducted not only in. in order to reflect the business operations and transactions carried out by the enterprise, fixation of cash property, income, sources of their formation. These financial statements are used in the process of development, justification, management decisions. Planning the direction and areas of activity, development of the enterprise, development and implementation of projects of innovative and industrial profile, organizational and personnel measures to improve the activities of the enterprise, increase work efficiency are somehow related to the preliminary analysis of reporting.
The main goal of financial analysis is to obtain several basic, most informative parameters that give an objective and accurate picture of the financial condition of the enterprise, its profits and losses, changes in the structure of assets and liabilities, in settlements with debtors and creditors. Such information can be obtained as a result of a comprehensive analysis of financial statements using a scientifically sound methodology.
The result of the financial analysis is an assessment of the state of the enterprise, its property, assets and liabilities of the balance sheet, capital turnover rate, profitability of funds used.
Analysis of the financial situation of the enterprise allows you to track trends in its development, to provide a comprehensive assessment of economic, commercial activities and thus serves as a link between the development of management decisions and the actual production and business activities.
Who uses analysis results and how
Various types of business analysis and their results are widely used by a wide variety of stakeholders.
Typically, in business activities distinguish between financial accounting and management (accounting) accounting.