This work was carried out at the Aqueduct and Sewer Base Business Unit in the Primero de Enero municipality, based on the evaluation of the financial situation by applying the methods and techniques of analysis and interpretation of the Financial Statements, deducing a set of measures and relationships that are meaningful and useful in decision making.
Consequently, the essential function of financial statement analysis is to convert data into useful information. It is a process of reflection in order to evaluate the current financial situation, so it becomes a novel aspect that is investigated and proposed to the company under study, due to the importance of objectively evaluating the work of the organization. towards economic activity that has a significant impact on the achievement of business efficiency. The investigation provides the entity under analysis with an important tool for decision-making in its economic and financial management. The work was structured with the explanation of the theoretical foundations related to the study of the methods and techniques of financial analysis, evaluating the results as a basis,to facilitate financial decision-making and the different stages of financial analysis are exposed to carry out the evaluation and in turn achieve an increase in financial efficiency, meeting the objective and hypothesis of the research.
Keywords: methods, techniques, financial analysis, evaluation
Summary
The present work carried out in the aqueduct UEB and sewerssed in the municipality January first, it is based in the evaluation of the financial situation by means of the application of the methods and techniques of analysis and performance of stating financial them, by deducing a whole of measures and relate that are significant and useful in takes it of decisions. Accordingly, the main function of the analysis of state financial them, is to convert the data in useful information. It deals with of a process of reflection in order to evaluate the financial current situation for which is converted in novel aspect that is to investigate and proposes to the undertaking objects of study,due to the importance it alternates it evaluate objectively the work of the organization towards the economic activity it has significant incidence in the attainment of the efficiency and managerial efficacy. The investigation offers the analyzed entity a tool of importance for takes it of decisions in your economic and financial step. The work was constructed in two chapters. In the chapter one the related theoretical foundations with the study of the methods and techniques of financial analysis are explained, in the chapter two, does to him a valuation of the results, as bases, to facilitate it takes of financial decisions and it is exposed the different stages of financial analysis to carry out the evaluation and in turn achieve an increase of the financial efficiency, fulfilling with the objective and the hypothesis of the investigation.
Keywords: methods, techniques, financial analysis, evaluation.
Introduction
The function of finance is found within the organizational structure of companies at a high level, because all the activities generated in it have financial implications, so decisions on this area depend on their success or failure.
In Cuba there are problems that limit the analysis of accounting and financial information, to which the Business Unit of the Aqueduct and Sewer Base of Primero de Enero is not exempt, such as: lack of training, little command of analysis techniques, lack of culture analytical, passive financial management not linked to financial economic analysis and poor quality in future projections.
The entity under investigation has not been objective regarding the application of the methods and procedures for evaluating the financial situation, resulting in not identifying in time the economic and financial aspects that show the conditions in which the company operates. So the objective of this work is to evaluate the financial situation through analysis methods and techniques that contribute to achieving adequate decision-making in the Aqueduct and Sewer Base Business Unit in the Primero de Enero municipality.
Materials and methods
The Business Unit of the Aqueduct and Sewer Base of Primero de Enero operates with the objective of responding to the needs of these services in the state and residential sector in the Primero de Enero municipality, for which the processes that make up the drinking water supply services, evacuation and liquid waste treatment, through the application of management systems that allow the entity to achieve business excellence. In addition, it is in charge of the application of the measures that guarantee the operation, maintenance and repairs of the aqueduct, sewer and waste treatment systems; preserving water resources and natural reserves against contamination, as well as ensuring the rational use of water resources.
Its main activities are aimed at the supply of drinking water, waste disposal, storm water evacuation through the existing networks in the urbanization, maintenance for the improvement and development of hydraulic infrastructure, and providing services to third parties.
Diagnosis of the current financial situation
At present, the Base Business Unit has the fundamental task of satisfying the needs of drinking water supply and waste and storm water evacuation to all customers residing in the municipalities of Primero de Enero and Bolivia. The Base Business Unit processes the accounting information necessary to prepare the Financial Statements and consolidates the Trial Balances, such as the Balance Sheet and Income Statement established in accordance with current legislation. It does not carry out the calculations of the different analysis methods, techniques and procedures to assess your financial situation, which affects planning and short-term financial analysis as an essential basis for making timely and efficient financial decisions.hence the need for a proposal for a financial diagnosis procedure that achieves such objectives.
Result s and discussion
Stages for financial analysis.
Stage I: Primary information.
This in turn consists of two phases:
1.Accounting cycle.
It is made up of the set of accounting operations that take place in a period, which can be monthly or annual if it corresponds to the set of months of the year. This begins with the first operation of each period, and ends with the preparation of Financial Statements. Its usual duration is one year, mainly for legal reasons.
The balance only shows that there is equality between debits and credits, but does not indicate the proper recording of all transactions. Despite this, the balance is a useful instrument, it is a working paper that is not distributed to users.
2. Financial Statements: it is the second phase within stage one.
Contains the Balance Sheet and Income Statement. (See Annexes 1 and 2). These states allow analyzing the information by which the economic and financial situation of the company can be evaluated. If you want to know and evaluate aspects of a financial nature in the entity, such as liquidity, cash sufficiency, risk in financing, the Balance Sheet would be analyzed, which provides information on the status of the Real Accounts, from which and applying different analysis techniques, you can determine the financial performance of the company in a given period.
Stage II: Analytical stage, this consists of two phases:
a) The application of analysis methods and techniques.
This phase is nourished by Stage I and consists of the following methods and techniques:
- Vertical Analysis Method:
It is used to analyze Financial Statements, such as Balance Sheet and Income Statement at a fixed date or corresponding to a certain period, comparing the figures vertically.
There are two procedures to carry out the analysis:
a) Technique of integral percent: it consists of determining the percentage composition of each account of assets, liabilities and equity, taking as a basis the value of total assets and the percentage that each element of the Statement of Income represents from net sales.
b) Simple or standard ratio techniques: they allow evaluating the performance that has occurred and anticipating future conditions. Liquidity ratios, Leverage or debt ratios, Activity ratios, Profitability ratios, Calculation of the cash conversion cycle. (Demestre, 2005: 78)
- Horizontal Analysis Method.
a) Increase and decrease technique.
It is a procedure that consists of comparing homogeneous Financial Statements in two or more consecutive periods to determine the increases and decreases or variations of the accounts from one period to another. This analysis is of great importance for the company, because it informs if the changes in activities and if the results have been positive or negative, it also allows defining which ones deserve more attention for being significant changes in the progress (Demestre, 2005: 83).
- Historical Analysis Method:
a) Trend Technique:
It is a procedure where trends, whether percentages, indices or financial ratios are analyzed, that is, changes in the items of a financial statement from one base year to the following years, are known as trend percentage, these help to show the extent and direction of change, serving as a basis for evaluating that period and forecasting the future.
Stage III: Action plan.
It constitutes stage three and is where the measures to be taken by the company to eradicate the problems detected in the previous stage and those aimed at maintaining favorable results or improving them are specified.
It is important to remember that the desired reality is separated from the current one by problems that must be identified to later minimize or eliminate them, therefore, feedback is the necessary time to correct possible deviations in the application of the procedure, serving to improve decision-making. short-term decisions of the company.
It can be expressed that the analysis of the Financial Statements constitutes a way to achieve the objectives previously argued, discarding the criterion that their analysis is somewhat limited to cold diagnosis and only reserved to accounting and financial specialists.
The fundamental Financial Statements were prepared in summary form using the data for the years 2013 and 2014. They can be seen in (Annexes 1 and 2)
Stage II consists of the application of three methods of analysis and diagnosis of the financial situation, which are explained below.
I - Vertical Analysis Method.
Simple or Standard Reasoning Techniques. This technique will be applied in the thesis together with the historical analysis method, applying the trend technique, then the financial ratios used are calculated and analyzed:
| 1. General Liquidity = | Current Assets (AC) |
| Current Liabilities (PC) |
Applying this formula, it is observed that in the year 2014 with respect to 2013 it has a decrease of $ 0.01, also in 2014 compared to 2013 there is an increase in Current Assets of $ 255 138.45, which constitutes 24.87% and an increase in Current Liabilities by $ 99 805.21 corresponding to 25.05%. When comparing the results of the two years, they indicate that the trend has been of increases, behaving in a fairly stable way, moving away from the established range for this reason.
| 2. Immediate Liquidity = | Current Assets - Inventories |
| Current Liabilities |
Carrying out this calculation, in 2013 the company has $ 2.10 of more liquid assets for each peso of short-term debt and in 2014 it assumes $ 2.26, being $ 0.16 higher than in 2013; without taking Inventories into account, since this is the asset with the least liquidity. However, the year 2014 with respect to 2013 behaves with an increase in its Current Assets and a decrease in its Inventories of $ 30 190.14.
Therefore, when analyzing this reason, it is far from the range (1 or greater) established for it and this is because its Available Assets in 2014 is $ 285 328.59 higher than in 2013.
| 3. Treasury = | Cash________ |
| Current Liabilities |
As observed when calculating, the company has $ 1.01 of available assets to face each peso of short-term debt, and in 2014 with $ 1.89. 2014 compared to 2013 increases by $ 0.88. This is due to an increase in Cash in 2014 amounting to $ 537 917.07 Therefore, in these years this index behaves above the established range (0.10 - 0.20), which shows that it is unfavorable, its tendency is to increase.
| 4. Debt ratio = | Totally passive |
| Total Liabilities and Capital |
Making this calculation, the debt is $ 0.31, it means that for each peso of assets you owe $ 0.31. In 2014 compared to 2013 there is an increase of $ 0.44. In the latter, it is observed that total assets increased by $ 6,523,015.67 and the volume of debts, which means a 0.44% increase; this last year tends to be unfavorable according to the accepted standard as ideal.
| 5. Quality of Debt = | Current Liabilities |
| Total Liabilities |
Making this calculation, the debt is 0.33 pesos, representing the amount of pesos of short-term debt for each peso of total debt and in 2014 of 0.06 pesos, it is observed that its value is very low, however the lower the value of it, it means that the debt is of better quality, so it gives us the measure that the company does not run the risk of defaulting on its short-term obligations, the trend of this ratio is favorable.
| 6. Inventory Rotation = | Net sales______ |
| Average Inventory |
| 7. Inventory Life Cycle = | 360 days ___________ |
| Inventory Rotation |
As observed in the previous reasons when calculating inventory turnover, it was determined that in 2013 it rotates 17.39 times, every 20.71 days; in 2014 it rotates 14.62 times, every 24 days. When comparing the year 2014 with respect to 2013, the situation becomes unfavorable, since the trend was to increase in 4 days, which is negative due to the fact that their turnover decreases by 2.77 times.
| 8. Accounts Receivable Rotation = | Net sales______________ |
| Average Accounts Receivable |
Average Accounts Receivable = (C. for Initial Collection + C. for Final Collection) / 2
Average Accounts Receivable (2013) = ($ 46 366.63 + $ 53 940.65) / 2
Average Accounts Receivable (2013) = $ 50 153.64
Average Accounts Receivable (2014) = ($ 53 940.65 + $ 412 29.62) / 2
Average Accounts Receivable (2014) = $ 47 585.13
| 9. Life Cycle of Accounts Receivable = | 360 days ___________________ |
| Accounts Receivable Rotation |
As observed in the previous calculations, in 2013 their Accounts Receivable rotate 47.13 times, that is, they take an average of 7.64 days, in 2014 they rotate 53.03 times and they take an average of 6.79 days. When analyzing the year 2014 with respect to 2013, an approximate decrease of 1 days is observed, this ratio is favorable since it is found in the parameter established by the company (30 days).
| 10. Accounts Payable Rotation = | Purchases_________________ |
| Average Accounts Payable |
Purchases = Cost of sale - Beginning inventory + Ending inventory .
Purchases (2013) = $ 511 618.52 - $ 84 192.97 + $ 187 702.25
Purchases (2013) = $ 615 127.80
Purchases (2014) = $ 582 533.54 - $ 187 702.25 + $ 157 512.11
Purchases (2014) = $ 552 343.40
Average Accounts Payable = (C. to Pay Initial + C. to Pay Final) / 2
Average Accounts Payable (2013) = ($ 263 423.39 + $ 197 479.99) / 2
Average Accounts Payable (2013) = $ 230 451.69
Average Accounts Payable (2014) = ($ 197 479.99 + $ 235 872.73) / 2
Average Accounts Payable (2014) = $ 216 676.36
| 11. Life Cycle of Accounts Payable = | 360 days ___________________ |
| Accounts Payable Rotation |
As observed in the previous reasons, in 2013 Accounts Payable rotate 2.67 times and the payment period is 134 days, in 2014 it is 2.55 times and payment every 141 days, in the year 2014 compared to 2013 there is an increase of 6 days; when analyzing the situation of this indicator is not acceptable in relation to the parameter established by the company (from 30 to 60 days), in general this indicator presents an unfavorable situation the company maintains the rotation of the accounts during the years analyzed for paying less times and yes more days. Showing different from the cycle or the accounts receivable ratio, therefore it has a tendency in slight fluctuations of increases and decreases in the number of rotations and also in the amount of day.
| 12. Profitability on sales = | Net profit | x 100 |
| Net sales |
Making this calculation in 2013 for every 100.00 pesos of net sales, you earn 2.50%, while in 2014 you earn 2.35%. When comparing the year 2014 in relation to 2013, a decrease of 0.15% is observed; the reason is generally unfavorable, when analyzing and evaluating the profit they do not correspond to the level of sales given in the company where sales in 2013 amounted to $ 2,363,525.73 and in 2014 to $ 2,523,562.76. When comparing the year 2014 with the year 2013, an increase in sales of $ 541 284.68 is observed. In the two years analyzed, a slight recovery is seen, this is due to the fact that the level of profits is not in correspondence with the level of sales and that the costs in this period were for the year 2013 of $ 511 318.52 and for 2014 of $ 582 533.54
| 13. Return on Capital or Equity = | Net profit | x 100 |
| Capital or Average Equity |
Average equity = (Initial capital + Final capital) / 2
Average equity (2013) = ($ 1,928,456.04 + $ 2,711,875.61) / 2
Average equity (2013) = $ 2,320 165.83
Average equity (2014) = ($ 2,711,875.61 + $ 2,636,858.83) / 2
Average equity (2014) = $ 2,674 367.22
Carrying out this calculation, it is observed that in 2013 2.87% of income is generated before interest and taxes for every $ 100.00 of invested assets, however in 2014 there is a decrease in this indicator of 0.39%. In 2014, compared to 2013, it tends to decrease by 2.49%, the tendency to fluctuations of this ratio in the analyzed period is unfavorable, through this indicator the company measures its operational management and the return obtained from the investment that it owns and exploits through its asset management, the profit before interests and taxes during the analyzed period was in 2013 of $ 96 720.83 and in 2014 of $ 27 720.56.
| 14. Cash Conversion Cycle = | (Inventory Life Cycle + Collection Cycle) - Payment Cycle |
When analyzing the cash conversion cycle in both years, they present a negative result, which indicates that the operating cycle is shorter than the payment cycle.
Vertical Analysis Method
Integral Percents Technique
When performing the technique of integral percentages in the Balance Sheet it is shown that of the total Assets (100%), in 2013 26.14% are Current Assets, the Inventory represents 4.78%, the Accounts Receivable 1.37 %. Fixed Assets constitute 59.08%, Deferred Assets 2.11% and Other Assets 12.67% of the total. In 2014 the Current Assets symbolized 12.26%, where the Inventory constitutes 1.71%, the Accounts Receivable 0.39%, while the Fixed Assets were 25.42%, the Deferred Assets 0.95% and Other Assets 61.38%, observing an insignificant decrease in the proportion of the most representative Current Assets in relation to total assets. When analyzing the Liability and Equity accounts, in 2013 the Current Liability represents 10.15% of the Total Liability, 5.03% constitute Accounts Payable, corresponding 20.76% to Other Liabilities, representing 30.91% of Total Liabilities and 69.09% belonging to Capital or Equity.
In 2014 the Current Liabilities represents 4.77% of the Total Liabilities, 2.26% constitute Accounts Payable, 69.99% corresponding to Other Liabilities, representing 74.76% of the Total Liabilities and 25.24% belonging to Capital or Equity. This technique in the Income Statement shows that in 2013, of the total sales and services, 95.91% represents the total expenses for the different concepts, leaving only 4.09% of profit. In 2014, expenses amounted to 98.9%, with profit dropping to 1.10%, as can be seen, the levels of expenses are very high in both years. When comparing the year 2014 with the year 2013 the expenses increase by 2.99%, the tendency is to increase, an unfavorable situation for the unit, since this brings with it minimum values of profit.
Stage III Action Plan.
| Weakness | Measurements |
| Bad Payment Policy | Establish a payment system to settle the debts that are with aging balances. |
| Low Profitability | Work to decrease costs and raise revenue to increase profitability |
| High Indebtedness | Try to find other sources of financing other than third-party financing. |
| Immobilized Cash | Use the immobilized cash in other investments that generate income so as not to incur opportunity costs |
Conclusions
- The application of financial analysis techniques constitutes the basis for the analysis of the financial statements, serving managers for proper decision-making. The Business Unit of the Aqueduct and Sewerage Base of the municipality of Primero de Enero does not evaluate its financial situation by Therefore, it presents weaknesses in terms of profitability and indebtedness. When evaluating the financial situation in the UEB Aqueduct and Sewerage in the Primero de Enero municipality, managers can make sound decisions that increase efficiency and decrease losses.
Bibliography
- DEMESTRE CASTAÑEDA, A: Techniques for Analyzing Financial Statements. Editorial Center for Financial Accounting and Insurance Studies (CECOFIS), Havana, 2005 "Management and Administration: Economy and Finance", (2007). PP 5-12. Available at: http://www.gestionyadministracion.com/finanzas/. Visited on September 8, 2015. GITMAN, L: Fundamentals of Financial Administration, Editorial Félix Varela La Habana. 2006. GOMEZ SÀNCHEZ, P: Fundamentals of Accounting and Financial Analysis, 2005HERNÀNDEZ CABRERA, J: Financial Analysis, 2005MORERA CRUZ, JO: Decision-making based on the state of changes in the financial situation, 2006
Annexes
Annex No. 1: BUSINESS UNIT BASED AQUEDUCT AND SEWER FIRST JANUARY
BALANCE SHEET (SUMMARY)
| ACCOUNTS | YEAR 2013 | YEAR 2014 |
| AMOUNT | AMOUNT | |
| Current assets | $ 1,026 065.97 | $ 1,281 204.42 |
| Cash and Cash Values | 402 721.56 | 940 638.64 |
| Short-term Accounts Receivable | 53 940.65 | 41 229.62 |
| Inventories | 187 702.25 | 157 512.11 |
| Other current assets | 381 701.51 | 141 824.05 |
| Fixed assets | $ 2 318 944.31 | $ 2,655 476.79 |
| Deferred assets | $ 82 841.16 | $ 98 939.27 |
| Other assets | $ 497 437.50 | $ 6 412 684.13 |
| TOTAL ASSETS | $ 3 925 288.94 | $ 10 448 304.61 |
| Current Liabilities | $ 398 357.16 | $ 498 162.38 |
| Short-term Accounts Payable | 197 480.00 | 235 872.73 |
| Other Current Liabilities | 200 877.16 | 262 289.65 |
| Other passives | $ 815 056.17 | $ 7 313 283.40 |
| TOTAL LIABILITIES | $ 1,213 413.33 | $ 7 811 445.78 |
| CAPITAL | $ 2 711 875.61 | $ 2,636 858.83 |
| TOTAL LIABILITIES AND CAPITAL | $ 3 925 288.94 | $ 10 448 304.61 |
Annex 2: BUSINESS UNIT BASED AQUEDUCT AND SEWER FIRST JANUARY
INCOME STATEMENT (SUMMARY)
| INCOME STATEMENT (SUMMARY) | 2013 | 2014 |
| AMOUNT | AMOUNT | |
| Sales | 2 185 744.95 | 2 326 600.01 |
| Other sales | 177 780.78 | 196 962.75 |
| Sales and Service Income | $ 2,363 525.73 | $ 2 523 562.76 |
| Less: | ||
| Retail Merchandise Cost of Sales | 511 618.52 | 582 533.54 |
| Direct Operating Expenses | 951 515.55 | 1 077 241.54 |
| 1 463 134.07 | 1 659 775.08 | |
| Gross Income from Operations | $ 900 391.66 | $ 863 787.68 |
| Less: | ||
| Operations Expenses | 841 343.90 | 804 501.68 |
| Net Income from Operations | $ 59 047.76 | $ 59 286.00 |
| Less: | ||
| Financial expenses | 59 831.50 | 83 769.06 |
| Plus | ||
| Financial income | 97 504.58 | 52 203.64 |
| Income before Tax | $ 96 720.84 | $ 27 720.58 |
