An analysis of the business activity of an enterprise should characterize the results and effectiveness of its main production activities. Moreover, a reliable assessment of business activity can be obtained as a result of comparison with enterprises related to the sphere of capital investment. However, such an analysis requires a number of criteria to be identified.
The essence of business analysis
The business activity of any enterprise is reflected in its reputation, the pace of economic development and the prospects for the sale of products or services. The analysis of business activity, in turn, makes it possible to understand how effectively the organization's management works, and how attracted and own funds are used in business activities.
From the point of view of financial analysis, business activity is characterized by turnover indicators. Accordingly, the assessment of business activity implies the need to determine the turnover ratios for the following components:
- fixed assets;
- working capital;
- assets;
- accounts payable;
- receivables;
- inventories.
Turnover ratios for each of these parameters are determined by the ratio of sales proceeds to the average annual value of fixed assets, working capital, funds, equity, the amount of the company's loans, receivables and inventories, respectively.
It is these ratios that most fully reflect the level of profitability of the enterprise and affect the stability of its financial position in the market.
Most significant indicators of business activity
In order to conduct an analysis of business activity, all of the above indicators are taken into account. However, the main ones are accounts receivable and payable. After all, an increase in accounts receivable and payable is most often interconnected, usually leads to difficulties in paying bills, contributions to the funds of the organization and is often one of the main reasons for the termination of the company. On the other hand, enterprises that have the ability to collect receivables faster than the time of their repayment comes, theoretically can operate without attracting credit funds. However, in practice, almost all large enterprises take out loans in one form or another for the development of production and refinancing of debts.
Business performance analysis is important for understanding the efficiency of an enterprise's business processes and timely elimination of all kinds of “financial leaks”. On the other hand, knowing the existing indicators of turnover, the company's management has the opportunity to obtain an economic justification for the feasibility of attracting various sources of funding.
