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Ministry of education of Ukraine

National university "Lviv polytechnic"

Department of accounting and analysis

Calculation and graphic work on the course: Business analysis

Performed by:

stud.of gr. OA-33

H.Rishko

Examined by:

Z. Skybinska

Lviv-2014

Introduction

Analysis of business enterprises - a comprehensive study of the status and development of business enterprises (firms, companies, etc.) in conjunction with its technical level and social development team for evaluation of given parameters, identify farm reserves and increase production efficiency. The quality of the analysis provided by applicable techniques and methods, completeness and reliability of the information, qualifications artist.

In modern conditions any specialist that is relevant to the organization and management of the business, must have a certain analytical tools, know and understand the logic of analytical procedures.

The aim of this work is to improve the design level of theoretical knowledge of the subject "Business analysis" tools and methodology of analysis, improving technology preconceived conclusions of the analysis, development of the ability of perception of economic processes and phenomena occurring in the enterprise, and their relationship interdependence.

Objectives:

1. The acquisition of theoretical knowledge to analyze cash flows by indirect method;

2. Survey of business enterprises in the following areas: the analysis of non-current assets, analyze the effectiveness of labor and material resources, the overall assessment of the financial situation, the analysis of financial stability, liquidity, solvency, business activity and profitability of its operations.

This work consists of an introduction, theoretical part of the calculation and analysis, conclusions, list of references and appendices.

The source of information for performing calculation and graphical work is the financial statements PJSC « Lviv Confectionery Factory Svitoch" for 2012 and 2013.

Section I. Theoretical part Analysis of composition, structure and dynamics of the property (assets) of the company

The capital structure for a company is dependent on the proportion of debt and equity used by the company to finance the operations of a business. The company management is responsible for the tactical choice regarding the determination of the capital structure that is optimal for the company; this is often based on an analysis of the direct and indirect costs associated with the various sources of finance used by the business. Harris and Raviv (1991) suggest that every single company determines a unique capital structure based on the distinct costs and benefits associated with using particular form of financing and the ability of a company to raise either equity or debt with relative ease. 

The optimal capital structure for a company is examined in the light of the factors that impact on a certain company in its internal and external business environment. It is also suggested that the choice of a capital structure is indeterminate and a particular combination of debt and equity that is most suitable in the current environment might not be the optimal capital structure as the business environment alters over the passage of time; therefore, this decision is dynamic and needs to be taken in the context of the recent changes in the business environment.

The decision to raise additional financing in the form of debt or equity is a marginal choice and a firm's management has to make this decision based on the costs associated with additional debt and equity instead of the costs associated with the overall debt or equity issued by the company; this implies that the choice for capital structure is marginal. Similarly, over the passage of time as the business dynamic alter the business might be required to tilt its capital structure policy based on the recent changes .

The earlier research on the determinants of the capital structure decision by firms has identified certain factors that are considered to have a noteworthy impact on the choice of the capital structure adopted by a firm. The recommended factors may gain or lose important over the passage of time as the risks associated with holding debt and equity alter. The literature from around the world has aimed at determining the factors that may impact the choice of capital structure based on the unique factors associated with the national economic environment and this study will have a special emphasis on the capital structure choice of firms in the UK. However, it is important to note that several studies in the past have identified certain factors that are common to the determination of the capital structure throughout the globe .

The analysis of the composition of assets can be made more effective, if the indicators defined on the basis of the balance sheet data of the previous years are also included in the analysis. Apart from a comparison in time, the composition of the structure of assets can also be compared to the data of another company, or perhaps to average sectoral data (geographic comparison) providing that comparison is clearly feasible, because the composition of the assets is fundamentally determined by the activities of the company.

It is an important aspect in the analysis that the structure of assets is fundamentally determined by the nature of the activity. There are significant differences between manufacturing, trading or service companies in terms of the distribution of assets.

Property, Plant and Equipment Assets (PP&E assets) and perhaps other capitalitems include such things as buildings, factory machinery, office furniture, large computer systems, and vehicles. These assets may be chosen and acquired through a competitive capital review process, with an emphasis on what the asset contributes towards meeting business objectives and operational needs, the expectedeconomic lifeof the asset, and total cost of ownership. These assets are usually subject to depreciation, which lowers asset book value over its depreciable life, creating a tax savings by lowering reported income. Traditionalasset life-cycle managementtechniques are applicable primarily to assets in this category.

 For companies in capital-asset-intensive industries (such as construction, transportation, and heavy manufacturing), PP&E assets may represent well over 50% of the asset base. For companies in other industries (eg, insurance, software development, or financial services) PP&E assets may represent a far smaller percentage of the asset base, consisting of little more than office furniture and computer systems.

Current assets provide the company's liquidity. Current assets are either cash itself, or items that are at least in principle readily converted into cash. As the pie chart at left (in blue) shows, the three major current assets components are cash, inventories, and accounts receivable. Liquidity metricssuch as working capital or the current ratio, in fact, are based on the company's reported totals in these current assets categories.

Each of these three current assets categories, moreover, is managed, and controlled with its own methodology.

Cash on hand is necessary for meeting immediate expense needs, including paying employee salaries, day-to-day operating expenses, and other short term obligations. Sufifcient cash on hand also makes possible a quick response to changing market conditions or competitors actions, and investment in such things as product development and infrastructure upgrades. A cash shortage can prevent these kinds of investments. A cash shortage also puts the company at risk of defaulting on loan payments due, or even meeting payroll. 

Clearly, a first priority for management should be maintaining sufficient cash assets without accumulating a large cash surplus. A cash surplus is undesirable because cash sitting idle in an asset account is not earning interest or otherwise working productively. As mentioned, cash is a major component of liquidity metricsincluding working capital and the current ratio.

Inventories are obviously necessary for meeting production needs and customer needs. In manufacturing companies, inventory categories typically include raw material inventories, work in progress inventories, and finished goods inventories.A retail business, on the other hand, may have only merchandise inventories inventories, waiting for sale to customers. In any case, acquiring, handling, and holding inventories can bring significantcosts. 

Inventory management is the art of maintaining enough inventory to meet customer and production needs, while keeping inventory size and the time inventories are held to an absolute minimum. When these objectives are achieved, the company's scores on activity and efficiency metricssuch as inventory turns and days sales in inventory improve.The opposite results occur when excess inventory sits idle.

Accounts receivable are monies owed to a company for goods or services sold and delivered but not yet paid for by the customer. The only companies in business that would not have accounts receivable are the rare companies that sell exclusively on a "cash only" basis to all customers. Accounts receivable are legitimately classed as current assets because they are expected to be converted to cash in the near term, typically within 30 days or less. 

The challenge for management with accounts receivable is to prevent accounts due from slipping beyond the stated due period or, worse, having to be written offas bad debt. In fact most companies expect that a small percentage of their accounts receivable will never be collected and in the interest of accurate financial reporting they recognize this reality by carrying an account called "allowance for doubtful accounts".

The company's ability to manage accounts receivable effectively is measured with activity and efficiency metricssuch as accounts receivable turnover, and days sales outstanding. Improvements in these metrics raise overall company ROA.

Many companies own shares of stock in other companies and/orbonds(debt) issued by other companies or government organizations. These assets and other kinds of securities can provide an alternate, or supplemental source of income even for companies that are not in the investment industry. There is in fact an income statement category for reporting revenues and expenses from these investments, separate from the revenue and expense items for the company's normal line of business. These Long term investments and funds assets can (or should) produce income simply as a consequence of ownership. Financial income from long term investments and funds, as well as their balance sheet values of course contribute to overall company ROA.

When long term funds and investments are bought, held, traded for the purpose of bringing income, the portfolio of these assets can be managed and optimized using traditional techniques of portfolio management. However, it should be noted that another purpose for owning securities issued by another company is to exercise control over the management and operation of that company.

When company A owns 50% more of Company B's voting stock, Company A is said to have an active majority interest in Company B. In such cases A (called the parent company) can literally control B (the subsidiary) by choosing its Board of Directors and by getting its desired outcome for every issue that is put to shareholder vote. A company can still exercise a strong measure of control over another company by taking an active minority interest (which usually means owning 20% - 50% of the other company's voting stock). Active minority owners exercise control by persuading enough other shareholders to vote with them to make a majority block. In any case, when one company owns another company's voting stock, and when the purpose is control, the "returns" from the investment go beyond the normal investor returns of dividends and share price increase. The benefits from assets that provide control of another company do not factor directly into the ROA calculation. 

Intangible assets include such things as intellectual property (proprietary knowledge, formulas, or trade secrets), and copyrights, trademarks, and patents. These are legal intangibles, meaning they are defensible in courts of law. However, the "intangible assets" also includes so-called competitive intangibles generally not defensible in court such as company reputation and brand recognition. Both legal and competitive intangibles legitimately qualify as assetsbecause they are acquired at a measurable cost and they have value for the business.

The returns or financial gains from individual intangible assets is usually not so easily measured as is the gain from other assets, such as long term investments—unless the intangible asset is sold to another company. The contributions of intangible assets to the "Returns" in ROA are primarily long term and indirect: intangible assets may improve the company's ability to compete effectively in the market, to deliver unique products or services, or to charge higher prices (and receive higher margins) because of brand strength.

The analysis of the non-current assets begins with the study of the dynamics of total and individual types. The summary of the first section indicates the amount of non-current assets which are used in household activity. The reduction of total cost of non-current assets for the period under review may indicate reduction of household activity of enterprise, so it’s important to determine its possible reasons. Analysis of the structure of non-current assets and its changes plays a special role in the analysis of non-current assets ensuring of the enterprise. A large proportion of fixed assets and unfinished construction as a part of non-current assets, as well as a large proportion of their growth in changing the total value of non-current assets for the period under review, characterizes the enterprise’s orientation on creating the material conditions for the expansion of its main activity.

In the analysis of non-current assets are paying attention to the presence of intangible assets and the change of their value during the period. We also look at changes in the cost and the proportion of fixed assets, as well as its causes. Pay attention to the fixed assets of the organization that are purchased , sold, liquidated or leased to during the reporting period. Availability of long-term financial investments indicates the investment orientation of organization.

Increase of the proportion of current assets in the assets of the organization may indicate a more mobile asset structure to accelerate the turnover means of the organization; distraction of current assets on consumer lending products and services of the organization, subsidiaries and other debtors showing the actual immobilization of this part of the current assets from the production cycle; minimization of production base etc.

In order to make definite conclusions about the causes of such changes in the proportion of the assets, conduct a detailed analysis of individual components of current assets. For example, significant increase of leftovers on reserves and expenses items are not always a sign of increased production, but may be the result of slower turnover of these assets. In the analysis accounts receivable must pay attention to its growth rates. An indication of unsatisfactory performance of the organization is the existence of overdue receivables. Considering that in the new form of the balance not provided articles showing the overdue debts should further analyze debts on each debtor and only then to draw the appropriate conclusion .

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