Object Finance Analysis Forex

No matter how great the company or the activity that is engaged, or possesses such antiquity, is always subject to slip into a financial instability marked by the insolvency and liquidity, all product in many cases of bad financial policies, but most of the opportunities created by serious strategic mistakes or the accumulation of errors both in financial and productive, commercial and administrative.

The current situation in the world, characterized by a very strong global competition, sharp and sudden economic and financial changes that generate large changes in the value of currencies and interest rates, important changes in the prices of raw materials, and continuous changes in tastes and preferences of consumers, resulting in firms having to do constant monitoring of your financial situation. Precisely the objective of our work is to analyze the financial situation of Company X in the first quarter of 2006 and 2007 based on the ratio pyramids and the analysis of working capital management, debt analysis and profitability and financial to show where the main problems when designing strategies for solving them.

For all this is very important to conduct economic analysis of a systematic and regular, as an instrument to measure the activity of the company, the behavior of labor productivity, efficiency in asset utilization, compliance with the obligations incurred by the company in developing its business.

To carry out our work was necessary to draw on such tools and techniques useful in obtaining and processing information including: document review, direct observation, interviews, surveys, teamwork, brainstorming, Microsoft Excel, Microsoft Word, etc..

Theoretical foundations.

When you know the / s cause / s that led to financial problems, it is necessary to define the tools, methods or systems to implement, proceeding then to select the most appropriate to the capabilities, needs and restrictions. Performed these steps you should plan the implementation of these measures, coming after its implementation, evaluating the results obtained so as to make the necessary corrections.

The first thing to do is have the financial indicators such as profitability, liquidity, solvency, indebtedness, inventory turnover, rate of revenue collection and payment deadlines, and total profits. Application of analysis of the total expenditure and revenue and sectors. Evolution of indices.

Let’s see how this initial analysis would. Meet tables of results and their evolution over time is needed to understand what makes up that revenue and expenditure and see which have deteriorated over time. The importance of each expenditure and its composition is important, so is the evolution of their respective rates to recognize the relationship that in relation to sales, but also the percentage that each expense represents sales, as expenses category, and the total concept.

It is so important to know the total profits, as object of activity, and products or services sold, so the benefits accumulated by product or category from highest to lowest we know which are those that are subtracting rather than adding the total profit and which account for a smaller profit than expected or required.

The credit and debt indicators, such as the current liquidity and dry, give us a clear indication of our ability to pay in the short and medium term.

The inventory turnover shows the excesses of the same and the financial costs that would be created as well if you look at the item or product analysis can detect those that increased generation of financial and operating costs rise.

The analysis of benefits and products fit rotations branch also be made where this is from, and even apply the same type of analysis for profit and turnover for each branch. Know so that branches added or subtracted to the overall benefits, and if it is possible to improve the performance of branches by removing them certain product lines or services.

The study of bad debts and arrears, as well as the bad loans and the level of delay for determining the total amount thereof, the relative importance of creditors and debtors in terms of both the amount and the risks involved in the delay or non-payment.

Moreover, it is necessary to have indicators and ratios relative to: total or by product line, satisfaction levels of customers and consumers both in relation to the company and its products or services. Turnover rates or customer and employee loyalty. The levels of faults and faulty products and processes.

And finally have a clear and accurate information on the evolution of indicators concerning the evolution of the market, prices of raw materials and supplies, of base interest rates, consumption levels, the exchange rate of market share of individual competitors, change in tastes, changes in legal and any major change in the relationship with suppliers / customers / competitors / substitutes and changes in entry and exit barriers that may affect relationships.

Once it has all this information we can correlate the deterioration in time of financial indicators in relation to changes in operational and functional business, and in relation to the changes that took and take place in the environment.

Knowing this would not only enable us to understand the causes of financial problems, but also evaluate the different levels of risk and the possibility of salvage, and therefore know that actions be taken and in what form.

Thus for example we might know that sales are falling due to lower satisfaction levels caused by lack of timely delivery, billing errors and poor service after sales. Also, they may be related to increased staff turnover and significant reductions in levels of productivity processes. To this should be added the lack of benefits caused by the excessive costs associated with activities generating added value.

Definition of financial analysis:

The financial analysis to interpret financial facts based on a set of techniques that lead to decision-making, and explores the potential for funding and investment of a company from the financial statements.

For the analysis and interpretation of financial statements using financial ratios, which allow rapid diagnosis of the economic and financial situation of the entity. Through analysis of the reasons is to determine the different dependency relationships that exist when comparing the figures of two or more items comprising the content of financial statements.

One reason usually does not provide the information necessary to learn how the body works, taking into account that the use of a set of reasons that premature determine the company’s financial situation.

Working Capital:

The use of net working capital in the use of funds is based on the idea that the available assets, which by definition can be converted into cash within a short period so it can be used to pay the debts or obligations hereunder, such and as is usually done with cash.

The reason for using the net working capital (and other liquidity ratios) to assess the liquidity of the company, is the idea that the greater the margin that the assets of a company to meet its obligations in the short term (current liabilities), such payment will create more capacity to pay its debts when due.

This expectation is based on the belief that assets are sources of cash inflows while the liabilities are sources of cash outlay. In most influences enterprises or receipts and disbursements and cash outflows are not synchronized, so it is necessary to have some level of net working capital.

The cash outflows resulting from short-term liabilities are somewhat unpredictable, the predictability same applies to documents payable and accrued liabilities. The more predictable are the inputs to housing, the less net working capital will require a business. Firms with more uncertain cash inflows must maintain adequate levels of current assets to cover current liabilities. Since most companies can not match the cash receipts with disbursements of it, are necessary sources of income in excess of disbursements.

Return on Capital:

The data of average productivity of labor and different types of assets. Branches within each industry are the basis for estimating capital cost differences between firms. Using the observed levels of average productivity of labor and capital in different types of businesses as well as the levels observed in the salaries of other factors (work), it is possible to obtain as residue differences in gross returns to capital between different. Branches within the same sector.

X Company Financial Analysis

To perform an analysis of financial statements is necessary to evaluate the data they contain, to highlight the comparative and relative significance of the information represented.

This study includes analysis of the reasons, comparative analysis, rate analysis and review of the data. It is difficult to say that one of these is more useful than another, because everyone in the situations facing the analysis is different.

Net Working Capital:

For the above working capital must be positive so striking that in determining this measure of liquidity, the outcome is negative, what is clear is unfavorable, which means that debts and short-term obligations are greater than the ability to pay of the company. In 2006, current liabilities greater than current assets at MP 744.2 and 2007 despite an increase in the assets of MP 1359.3 and MP 1015.3 liabilities remains current liabilities greater than current liabilities in MP 400.2. However it is necessary to analyze its quality as a measure to assess the ability of the company to pay its obligations must be considered:
- The nature of current assets that make up the working capital.
- The time required to convert these assets into cash.

The following table shows an unfavorable change in the composition of the working capital of the company during the year 2007, cash decreased MP 1732.0 in relation to 2006, representing the 23% of total assets for 2006 and 7% for 2007, while being a resource inventory increases fluid phenomenon MP 911.7 representing 45% of total assets for 2006 and 47% for 2007, this being a disadvantage for working capital. As regards the liabilities are the most significant borrowings representing 26% of total liabilities in 2006 to 30% by 2007, increasing by 1369.8 MP for the year 2006 and provision for general repairs to 37 % for 2006 and 20% in 2007 despite having fallen in MP 1792.2.

Working Capital Analysis.

I Quarter 2006 – I Quarter 2007

Current ratio:

By observing the behavior of the same company can argue that it is negative, since it does not have at least $ 1.00 to pay short term obligations in the two years analyzed. In 2006, $ 0.94 and $ 0.97 for 2007, being a disadvantage for working capital in the company.

Immediate liquidity or Acid Test:

In the years analyzed the behavior of this index is unfavorable for the company in 2006 had $ 0.65 and in 2007 with $ 0.61 of readily available assets for each dollar of current liabilities, so it is clear the significant role with inventories in the business. In 2006 represented 45% and 47% in 2007.

Activity Reason:

The average term of two years of inventory for raw material and materials is slow, but efficient for the year 2006 behaving this with a shorter rotation cycle of 8 days for 2007. This slow process inventory is given by the magnitude of idle inventory that has the company representing 18% of total inventories amounting to 621.3 MP, but were not in process and finished production with appropriate behavior and rotating fast enough in process for the year 2007 13 times every 7 days and for the year 2006 11 times every 8 days and finished production 14 times every 6 days and 23 times every 4 days ara per year respectively, behaving slower rotation of the Production Process in 2006 and faster production ended in 2007.

Given that both periods of the years analyzed, the company is in full production of sugar so it speeds up the rotation of the productions.

Rotation AC (2007) = Sales / AC
= 0.85

Rotation AF (2007) = Sales / AF
= 0.25

CT Rotation (2007) = Sales / CT
= 10925.3 / (- 400.2)
= – 27.3

Operating Cycle (2007) = (PMI + PPCC) – PPCP
= 53 to 22
= 31 days

On account of the operations get cash every 31 days.

Operations Cycle Chart 2007

When comparing the year 2006 compared to 2007 we noticed an increase of 3% in the first year it behaves with 18% and the second by 21%, being more favorable for the company in 2006 as it was under funded by third parties that in 2007, noting also that the quality of the debt is bad for both years and in 2007 the Liabilities represents 98% of Total Liabilities given mainly by short-term borrowings (26%) and for the purchase of sugarcane from suppliers (22%).

Profitability Ratios:

By making the comparison of 2006 to 2007 the variation is not significant in both periods, as sales levels relative to total assets is much lower, it is clear that the use of assets is too poor to generate income , a situation unfavorable to the company. For each dollar of assets invested in 2006 has sold $ 0.15 and $ 0.17 for 2007.

For the determination of operating income to use the profit before tax and interest, but this coincides with the utility of the period, because the analysis was done in the first quarter has not yet completed fiscal year. For 2006 the company has a loss of 796.9 MP so should not the analysis of this index and for the year is only useful 2007la MP 150.7 as not significant for analysis.

Working Capital Required

Calculation of average daily sales = Sales / 360 days
= 10925300 / 90 days
= 124392.22

Determination of Average Daily Sales = CTN * Days Sales finance
= 121399.22 * 36.1 days
= 4382259

Net Working Capital for the company in 2007 is 4382259.14, which is more than the capacity needed to cope with debts wings.

Balance graphics

By making the comparison with real relation to the year 2007 the results are favorable as there is a utility MP 150.7 whereas 20 is a loss of MP 796.9. Total revenues decreased by 29.3 MP and product subsidies ranging from 49.5 MP balanced by an increase in other revenues of 45.3 MP.

Total expenditures decreased in proportion much income MP 976.9, influencing the decrease in cost of sales of an MP 156.9 among others.

With respect to plan is a failure on the utility of MP 732.7 to 883.4 as planned there is a real MP’s MP 150.7, such failure is given by a decrease in sales because of MP 3601.0 14527.2 10925.3 MP MP planned sold since for breach of sugar production plan of 10581.4 MT.

With the completion of this work makes the following conclusions:

1. The Company has a significant lack of solvency and liquidity for working capital is negative.

2. Low levels of sales: Due to the failure of sugar production plan.

3. Accounts Payable are very high.

It is recommended to the directors of the entity:

1. Make a commitment to staff trained to reach conclusions about the idle inventory.

2. Conduct studies on the payment system used.

3. Ensure adequate resources in a timely manner for compliance with the reparations of Industry and the quality of it.

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