Each CFO is faced with the task of objectively assessing the results of the firm's work, identifying possible problems in its functioning, and analyzing the implementation of strategic goals. To do this, you must be able to read the financial information presented in the reporting of the organization.
Instructions
Step 1
The financial statements of a company are a fairly large amount of data, which is quite difficult to understand. As a rule, when considering it, attention is paid only to individual articles, but at the same time they forget about the assessment of the enterprise as a whole.
Step 2
When reading financial information, you should study the dynamics of the balance sheet items. Horizontal analysis makes it possible to compare the indicators of assets and liabilities with previous periods, to determine how much each item has changed, at the expense of what part of the company's own and borrowed funds the company's property was formed.
Step 3
Vertical analysis is based on determining the proportion of each item of asset and liability in the total. At the same time, it is quite easy to determine some indicators. For example, to calculate the creditworthiness, it is enough to calculate the ratio of equity and debt capital.
Step 4
For a quick analysis of the company's activities based on the available financial information, a number of ratios can be calculated, combined into three groups: profitability, liquidity and turnover.
Step 5
The most important in determining the efficiency of the company are the profitability of sales (the ratio of profit from sales to the volume of proceeds) and the return on equity (the ratio of net profit to the amount of equity capital).
Step 6
Liquidity indicators allow us to assess the company's solvency and its ability to timely pay off short-term liabilities. Among them, an important place is occupied by the current liquidity ratio, equal to the ratio of current assets to short-term liabilities.
Step 7
Among the turnover indicators, special attention should be paid to the turnover of accounts payable and receivable, which is defined as the ratio of debt to the company's revenue. If the turnover rate of accounts receivable is higher than the turnover rate of accounts payable, then this indicates the efficiency of the use of financial resources in the organization.
