The form of cooperative production has been increasing its levels of operation in recent years. Traditionally, entities with these characteristics have lacked the use of analytical tools that contribute to the interpretation of accounting information, which is why strong signs of poor culture are evident in economic-financial analysis. It was decided to study this problem in one of the most recently created entities related to this form of socialist production: the Basic Units of Cooperative Production (UBPC). A proposal is presented, based on a previously made diagnosis, to eradicate deficiencies by incorporating economic indicators and other analysis techniques that contribute to making objective and timely decisions.
2. Introduction
Accounting is the science that registers, processes and synthesizes the real financial operations of an entity in order to convert them into exact, clear and precise reports in a given period of time, in order to analyze and interpret them by the accountants, supporting their managers in planning and control, in order to obtain better results in decision-making. For the above, it is inferred that the work of accounting does not end with the recording of economic events, a task that is conceived by a large number of people as the final phase of a cycle, when the truth is that this discipline acquires its eminently scientific character from the presentation and interpretation of its financial statements.
The need to interpret accounting information and detect potential operating problems is essential for the modern financial executive. The increasing complexity of transactions, activities and financial instruments, not to mention their speed, make this skill critical to business effectiveness in constant need of updating. One of the current trends in companies is the introduction and use of financial tools that help facilitate the work of managers and specialists. The proper use of them will allow them to have valuable elements of judgment in favor of increasing control over resources, carrying out a qualitatively superior analysis of their management in an objective and timely manner, which will result in raising the quality of the decision-making process of decisions and,therefore, in the constant increase of their efficiency and effectiveness.
The Cuban Financial Information Standards, in total harmony with the International Financial Information Standards, constitute the current regulatory framework that regulates the procedure for the analysis of accounting information in our country, referring to its importance for users of financial statements because provides a basis for evaluating the company's ability to pay as well as that of generating profits.
The economy in Cuba, as a result of its insertion in the world economy, has focused on a restructuring process that continues even today, which has brought about a series of changes regarding economic and financial regulations regarding companies, influencing their economic and social structure. The flexibility of the business accounting system, the possibility of disposing of profits, the emergence of new financial relationships with the bank, among others, make managers see the need to adapt economic-financial analysis tools to international practice., with a view to facilitating decision making more efficiently.
At the VI Congress of the Communist Party of Cuba (PCC) held in April 2011, one of the key points of discussion by the different delegate committees was how to achieve the economic efficiency of business management, in order to achieve This objective is essential to the existence of an economic-financial analysis system with a view to offering a diagnosis of the current situation and perspectives of the company, aimed at making objective and timely decisions by managers.
In recent years, many investigations have been carried out that demonstrate how the insufficient use of analytical tools by numerous Cuban companies influences that the results obtained are not entirely the desired products of decisions that were not carried out objectively or in a timely manner by not count managers with a diversity of elements that allows them to enrich their criteria when deciding what is most profitable for the company. Traditionally, some of the entities that have presented the greatest difficulty in this regard are those of the cooperative sector, therefore, taking into account what these entities represent for the country's economy and their impact on the development of the locality where they exist, it was decided to make a study at the UBPC Carlos Manuel de Céspedes of the Ranchuelo municipality,of marked sugar character, to verify how this problem occurs.
According to the foregoing, the problem situation is that there is a very basic economic-financial analysis at the UBPC Carlos Manuel de Céspedes and the factors analyzed are considered in isolation, by limiting themselves to analyzing the selected indicators of the fundamental activity, obviating the analysis of other productions that includes its corporate purpose. The incidence of each cost center is only carried out in the result of productivity and profitability so that other indicators and key elements in the valuation of companies are not followed up, thus promoting an interpretation of the economic and financial position not very objective, without determining causes and effects that allow corrective actions to be applied in a timely manner; therefore, its scope is very limited and, consequently,It is insufficient to offer a diversity of elements of judgment to managers for decision-making that the current situation of the entity requires.
In consequence with the treated problematic, the scientific problem is formulated through the questions and objectives that are listed below.
General inquiry question
What elements of the economic-financial analysis at the UBPC Carlos Manuel de Céspedes should be incorporated or modified, so that their results are in line with the current information needs of the managers associated with decision-making?
Specific research questions
- What are the theoretical foundations that support economic-financial information and its analysis?
- Does the economic-financial analysis carried out at the UBPC Carlos Manuel de Céspedes constitute a financial tool based on the current information needs of managers for decision-making?
- What elements must be incorporated or modified in order to offer a diversity of elements of judgment to decision-makers?
To answer the questions raised in the research, the following general objective is required:
Incorporate or modify elements of the economic-financial analysis at the UBPC Carlos Manuel de Céspedes so that its results are in correspondence with the current information needs of the managers associated with decision-making.
From this general objective the specific objectives of the research are outlined:
- Analyze the theoretical foundation of economic-financial information and its analysis.
- Characterize the UBPC Carlos Manuel de Céspedes, particularizing in its economic activity.
- Diagnose the current situation presented by the economic-financial analysis.
- Incorporate or modify elements in the economic-financial analysis at UBPC Carlos Manuel de Céspedes in order to offer a diversity of elements of judgment to the managers associated with decision-making.
The solution to the scientific problem is specified through the following research hypothesis: “If elements are incorporated or modified for the economic-financial analysis of the UBPC Carlos Manuel de Céspedes, then its results will be consistent with the current needs of information from managers associated with decision making. ”
The proposal presented for the economic-financial analysis at the UBPC Carlos Manuel de Céspedes will allow specialists to deepen their knowledge of the economic and financial situation, as well as prepare a report with a greater variety of elements of judgment that may result in taking objective and timely decisions by managers; Users outside the entity will also benefit, enabling them to be more informed by gaining clarity and knowledge of the behavior of economic and financial management. At the conclusion of this investigation, the company to which the UBPC Carlos Manuel de Céspedes is subordinated will have its economic activity characterized,as well as a diagnosis on the degree of correspondence between the results of the economic-financial analysis with the current information needs of the decision-makers. Indirectly, the work constitutes a call for reflection, both to the members of the Board of Directors and to specialists responsible for the accounting and financial work of the company, on the insufficient use of the analytical tools available to the entities.
The research hypothesis is validated by using various research methods such as:
Theoretical Level Methods: Synthetic Analytical, Inductive-deductive and Logical Historical.
These were applied to determine and study the main criteria on the economic-financial analysis and determine the organization of the proposal, as well as contextualize the problem, its background, development and transformations to determine the process and the state of the problem situation in the time of application of the diagnosis and its follow-up.
Empirical Level Methods: Document Analysis, Observation and Interview.
Through its use, both regulatory and administrative documents were verified to search for the foundations that contribute to the achievement of the proposed objective, allowing the development of the exploratory stage as well as checking the preparation and quality of the analysis of accounting information and its usefulness for managers.
This research is explanatory and descriptive, it is also practical as it provides a solution to a problem of everyday business practice and the proposal can be immediately incorporated into the analytical accounting in the entity taken as a reference.
The development of this work has been structured in three chapters:
In the first chapter, a group of aspects are analyzed that facilitate a better understanding and understanding of terms that will be a mandatory reference in later chapters. Several concepts are exposed that are related to the economic-financial analysis and that are of vital importance to know in order to be able to assume a position later regarding the definitions offered by various authors. Reference is made to analytical tools, as well as to the link that relates the discipline contained in the subject addressed with the decision-making process.
The second chapter's main objective is to characterize the entity taken as a sample and diagnose the situation it presents according to the problems presented. Finally, chapter three analyzes the proposal to improve the economic-financial analysis based on business management and its validation when applied.
3. Concepts and definitions on financial economic analysis.
The field of finance is closely related to that of economics and accounting. Financial administration can be viewed as a form of applied economics that emphasizes theoretical economic concepts. Financial management also takes some information from accounting, which is also another area of applied economics. Economic and financial analyzes study the relationships between finance and economics, and between finance and accounting.
Economic-financial management is made up of a set of coordinated and interdependent processes aimed at planning, organizing, controlling and evaluating the economic and financial resources available in the organization, in order to guarantee the best possible achievement of certain objectives. previously established and consistent with its mission. Through planning, organization, control, monitoring and evaluation, the people responsible for economic-financial management will be able to analyze and assess whether the resources of the organization are what they need, if they commit their mission and if they are being managed in the best possible way, adopting a dynamic of continuous improvement.
According to Hernández (2010), the economic situation of an entity will be given by the capacity it has to generate benefits and should be analyzed both in the past, in the present, and in the future, as its continuity depends on it; While the financial situation is related to the ability to pay both in the short and long term, it measures whether the operation and management of the goods is adequate, whether there are sufficient monetary resources for their existence. It concludes that the economic-financial analysis seeks to achieve the correct correlation between the development of the financial structure or sources of financing and the development of the economic structure or productive capacity that materializes in the assets of the unit.
Some do not distinguish between analysis and interpretation of accounting information. The accounting information that appears in the financial statements should be analyzed first, and then continue with its interpretation. For León (2003), it is of great importance to know conceptually these basic processes of economic-financial analysis, thus presenting that the decomposition of a whole into parts for Knowing each of the elements that make it up and then studying the effects that each one performs is what is called analysis, while transforming the information in the financial statements into a form that allows it to be used to understand the financial and economic situation of a company to facilitate decision-making constitutes interpretation.
It follows then that to know the economic situation it is necessary to carry out an economic analysis whose objective is the analysis of profitability as well as control of costs and productivity of the company, also the financial situation can be determined only through a financial analysis in order to analyze if the company has sufficient funds for its normal development and if these have been adequately distributed, its main mission is to assess the company as a whole, related to the company's ability to pay, that is, if you have enough money to meet your payment obligations. It is supported by the Statement of Situation, Statement of Income, Statement of Origin and Application of Funds and other financial statements. (Abreu, 2010)
Definitions given by various authors
Some authors whose works are internationally recognized as classics for the study of economic-financial analysis (Weston, 2006; Amat, 2006) offer us conflicting positions related to the subject by asserting that economic-financial analysis constitutes a science and an art., through which quantitative (technical) relationships can be used to diagnose the strong and weak aspects of a company's performance in order to make appropriate decisions.
According to Urías (1995), the analysis of the financial statements tries to investigate and prosecute, through accounting information, what the causes and effects of the company's management have been to reach its current situation and thus, predict, within certain limits what will be its development in the future, to make consistent decisions. Commonly, there are authors who limit the economic-financial analysis to the analysis and interpretation of the financial statements, thus avoiding the calculation of other financial and statistical indicators without which the analysis of the economic and financial situation of a company would be inconclusive.
For Latin American authors (Rivero, 1995; León, 2010) this science is a branch of knowledge whose foundations and objectives revolve around obtaining quantitative measurements and relationships for decision-making, through the application of mathematical instruments and techniques. on figures and data provided by accounting, transforming them for their proper interpretation. Consequently, the analysis process is based on the application of tools and a set of techniques that are applied to the financial statements and other complementary data, in order to obtain quantitative measures and relationships that indicate behavior, not only from the entity economic but also some of its most significant and important variables.
Thus, numerous definitions given by scholars on the subject could be mentioned; but when examining them, it is concluded that although each one defines the economic-financial analysis in his own style, all agree that it is nothing more than the process used to evaluate the behavior of the economic-financial management of the entities in a specific period specifying positive and negative results, and of the latter, causes and effects that allow estimations and predictions to be made about current conditions and future results, thus making it possible to make objective and timely decisions that are effective and lead to business success.
With the evolution of commercial relations between men there is a specialization of production and in turn the need to exchange one commodity for another. The commercial activity and the accounting records arise then and with the development of these the man understands the need to analyze them; seeking a mechanism that would allow him to study his behavior in a given period and that would facilitate decision making. Economic-financial analysis was established as an orderly process of knowledge in the mid-20th century.
The requirements that the economic-financial analysis must meet in any type of company are mainly that it is: objective, timely, systemic, rational, systematic and truthful.
The art of analysis, fundamentally the analyst, develops it with his ability to transmit the results of the same, giving it his own stamp. It is evident that practice develops this art. The economic-financial analysis is as rich as the analyst wants and needs, who must be a professional with extensive knowledge and possess extensive and up-to-date information, not only on the entity that analyzes it, but on its environment and on many occasions, that Knowledge must cover the national level and project to the international one; it is evident then that the interpretation of the financial statements depends to a great extent on the experience, judgment and character of the analyst.
The economic-financial analysis has a close link with the evaluation of the management work of the companies, based on the importance of linking the results with what has already happened and with what is about to happen; This provides a valuable overview of the entity's situation due to its comprehensive nature and its relationship with the final objectives. Currently, our managers must have a theoretical basis of the main methods used to achieve a higher quality of financial statements to optimize decision-making.
The economic-financial analysis evaluates the reality of the situation and behavior of an entity, beyond the purely accounting and financial laws, so the use of accounting information for control and planning purposes is a highly necessary for executives. It is undeniable that decision-making depends to a large degree on the possibility of certain future events which may be revealed by a correct interpretation of the statements offered by accounting. Through its rational use, the functions of conversion, selection, forecasting, diagnosis, evaluation and decision are exercised; all of them present in business management and administration. (León, 2011)
Para poder adelantar un proceso de análisis económico-financiero deben identificarse y estudiarse las fuentes de información de donde provienen los datos que servirán para dicha evaluación. La fuente primaria y natural de información son los registros contables a través de los estados financieros publicados, cuya finalidad es informar sobre la situación económica de la persona natural o jurídica que ejerce actividades industriales, comerciales o de servicios, en una fecha determinada, así como sobre el resultado de sus operaciones. Otra fuente importante de información la constituyen los informes anuales presentados a socios y accionistas, pues en dichos informes se incluyen datos y estadísticas exigidos por normas oficiales, especialmente en aplicación de los Principios de Contabilidad Generalmente Aceptados (PCGA), los cuales reportan una gran cantidad de información no contable (pero proveniente de sus registros) de la mejor calidad.
4. General characteristics of the main analysis tools.
Beyond the common definition of the term tools, which refers to the physical object with which an activity is carried out to achieve a proposed goal or purpose, in analysis they are considered as the procedures used to simplify, separate or reduce descriptive data. and numerical that make up the financial statements, in order to measure the relationships in a single period and the changes presented in various accounting years.
During the economic-financial analysis process, a diverse range of possibilities are available to satisfy the objectives undertaken when planning and carrying out this evaluation task. The analyst can choose, then, the tools that best satisfy the intended purpose, among which the following stand out:
1. Comparative Financial Statements using relative figures and index numbers.
2. Calculation of indices, ratios or ratios.
3. Statement of Change in Financial Position, based on:
- Working Capital.
- Cash.
4. Navigation Quadrant.
5. Factorial Analysis by the method of Chain Substitutions or Consecutive Substitutions.
6. Economic Added Value (EVA: Economic Value Added).
7. Graphic method.
Technique # 1: Comparative Financial Statements using relative figures and index numbers.
The evaluation of the real results with those of the previous period or with those of a period taken as a base can be useful to reach accepted conclusions, especially if the comparison is made with the results of the base period; however, difficulties sometimes arise when comparing the result of a given year with previous years, since this result may be influenced by several factors not attributable to the quality of the work carried out by the company, including: changes in the price system, new investments and technologies and urbanization of the area.
The presentation of the financial statements in a comparative way increases the usefulness of these reports, highlighting the economic nature of the variations, as well as the tendency of the same, that affect the development of the company. It is a method that allows the absolute numbers expressed in value that the comparative financial statements provide to be converted into index numbers and integral percentages to study and analyze the relationship that each particular item has with another of the same concept.
It will be necessary to select the base year, so that from these relations with that year are established. By comparing the chosen year with the base year, it is intended that the significant changes that have occurred will emerge and make possible, through this analysis, knowledge and study of the trends in financial data and related operations to form an idea about trends before and after the base year.
This method is basically made up of three techniques, the first two being the most widely used, which are named below:
- Vertical analysis method using the integral percent procedure or simple ratio procedure.
- Horizontal analysis method using the increase and decrease procedure.
- Historical analysis method: it analyzes trends, whether in percentages, indices or financial ratios.
Some significant aspects of the horizontal and vertical analyzes will be explained below.
Horizontal or increase and decrease analysis
In the horizontal method, the last two periods are compared to each other, since in the period that is happening, the accounting is compared against the budget.
The application of this method is based on the technique of increases and decreases based on the comparison of the items of a financial statement between two given dates with the purpose of knowing if there was an increase or a decrease between both and to what extent.
The variations between both dates will be calculated as follows:
1. Increase and decreases in absolute values.
2. Increase and decreases in relative values.
To demonstrate the application of this technique, for example, the Income Statement for the current year is compared with the base year and the current year with respect to the plan. The calculation of the variations in absolute values is obtained by the difference of the amount of the current year and the base year. The calculation of variations in relative values is determined by dividing the variation between both years (current - base) by the amount of the base year and this result is multiplied by 100.
Advantages of horizontal analysis
The advantages of horizontal analysis can be summarized as follows:
1. The percentages or ratios of the horizontal analysis are only affected by the changes in an item, unlike the percentages of the vertical analysis that may have been affected by a change in the amount of the item, a change in the amount of the item. basis or for a change in both amounts.
2. The percentages or the reasons for the horizontal analysis show the fulfillment of the economic plans when comparisons are made between the real and the planned.
3. The percentages or the ratios of the horizontal analysis are indices that allow us to appreciate, synthetically, the development of economic events. The comparison of these percentages or ratios corresponding to different items of the State of Profit and Loss, that is, between items of different states, is particularly useful in the study of trends related to the development of economic activity.
Vertical or component analysis
Using this technique, the composition of total assets, current assets and liabilities, liabilities and capital and stockholders' equity can be analyzed, or the specific weight of each item in the Statement of Income in relation to sales can be determined. It is used to analyze financial statements such as the Statement of Position and the Statement of Income, comparing the figures vertically. Refers to the use of the financial statements of a period to know its situation or results. For this it is necessary to convert the financial statements to analytical percentages, that is, integral percentages of the concepts of the asset considering this equal to 100 and integral percentages of the concepts of the liability and capital considering these equal to 100. In the same way,the statement of income and expenses is converted to percentages considering sales equal to 100. These states are designated as common-base states or states of integral percent or one hundred percent.
In the vertical analysis, it will be possible to see which are the most important accounts of each of the financial statements and the percentage that they represent in relation to the comparison figure and in the Statement of Income the profit margin on sales obtained in the period can be determined, the percentages represent what is equivalent to each number that makes it up, compared to the sales item.
There are two procedures for vertical analysis:
1. Procedure of integral percentages:
It consists of determining the percentage composition of each account of assets, liabilities and equity, based on the value of total assets and the percentage that each element of the Statement of Income represents from net sales.
This method of analysis should be used when you want to know the relative magnitude of each of the figures shown in the financial statements.
Integral percentage = (partial value / base value) X 100
2. Simple reasons technique.
Technique # 2: Calculation of indices, ratios or financial ratios
The analysis of efficiency reflected in economic-financial indices is used in almost all the productive branches of a country. Each branch has values in these own indices that allow evaluating the operational activity of companies or ministries, as well as their capacity to respond to any eventuality, and also makes it possible to know to what degree of interdependence exists with other sectors of the national and international economy.
The reasons are limited to serve as an aid to the study of business figures, pointing out only possible weak points. The reasons are one of the best known and widely used tools of economic-financial analysis. The indiscriminate use of all possible reasons may distort the analysis being carried out whose function is merely exploratory. It is necessary to know their limitations so as not to attribute qualities that they do not have.
Limitations of the reasons:
* The value of the ratio cannot be more exact than the data that is used and since these come from accounting, they are subject to manipulations and interpretations.
* The use of numerous reasons can be more confusing than clarifying the nature of the problem.
* The reasons are consequences of policies and events, not cause.
* They do not produce results by themselves.
* They are the starting point and not the end of the process.
* They are based on information that may be subject to fluctuations in inflation / deflation.
* When the analysis indicates that a company's employers deviate from its industry norms, this is not an absolutely certain indication that something is wrong with the company, although they can provide a basis for questioning and further research and analysis.
* They may exist to make comparisons with other companies due to different accounting systems or policies or extraordinary characteristics.
* Some of the important information of a company does not appear in the financial statements, such as changes in the direction, technological development or activity of the unions.
The ratios obtained are not significant in themselves and should be interpreted only by comparing them with:
* Ratios of the same company to study its evolution.
* Ratios budgeted by the company for a certain period. So you can compare what the company had set itself as a target with reality.
* Ideal ratios of a general type to check the situation of the company in relation to what is considered ideal or reasonable.
* Sector-type ratios to check whether the company obtains the profitability it should have based on the economic sector in which it operates.
* Ratios of the main competitors of the company. The company may be interested in comparing the ratios with those of its most direct competitors. For this you can obtain the annual accounts of your competitors.
* When using ratios, caution should be exercised with the magnitudes that have a negative sign, since they can distort reality and lead to erroneous conclusions.
The main reasons grouped by category are listed below:
1. Liquidity Ratios: They measure the capacity or ability of the company to satisfy its short-term obligations and there are three reasons that measure that ability.
1. Solvency Ratio = Current Assets / Current Liabilities
2. Acid Test or Immediate Liquidity = Assets plus liquid / Current Liabilities
3. Bitter Proof or Instant Liquidity = Cash / Current Liabilities
2. Reasons for Asset Management: They measure the effectiveness with which the company is managing its resources and therefore judge the specific liquidity of some current and current asset accounts.
1. Inventory Rotation = Cost of Sales / Average Inventory
2. Inventory Cycle = Days of the period / Inventory Rotation
3. Cycle of Rotation of Products in Process = Average Inventory of Products in Process / Total Production Cost x Time Interval
4. Collection Cycle = Days of the period / Accounts Receivable Rotation
5. Collection Management = Accounts Receivable / Net Sales
6. Rotation Ratio of Current Assets: Net Sales / Current Assets
7. Rotation of Fixed Assets = Net Sales / Fixed Assets
8. Asset Rotation = Net Sales / Total Assets
3. Debt Management Reasons: The debt ratios determine the amount of money borrowed that the company uses in relation to the owners' investment. In order to comment on the financial and economic development situation of a company, it is necessary to know its short and long-term indebtedness since the problems derived from it may be different.
The indebtedness indicates the percentage of its assets with debts, the higher these indicators are, the greater the amount of foreign money that is being used to generate profits and the higher financial leverage the company has. This situation indicates that special attention must be paid to this indicator, since the greater the indebtedness acquired by an entity, the greater the probability that it will not be in a position to pay its creditors and the higher this is, the greater the state of insolvency will present the company.
1. Indebtedness = Total Liabilities / Total Assets
2. Reason for Autonomy = Own sources (Patrimony) / Other sources (Debts)
3. Guarantee Ratio = Real assets / Debts
4. Real assets = Current Assets + Fixed Assets
5. Debt Quality Ratio = Short-Term Debt / Total Debt
6. Debt Cost Ratio = Financial Expenses / Cost Debts
7. Accounts Payable Rotation = Average Purchases / Accounts Payable
8. Payment Cycle = Days of the period / Accounts Payable Rotation
9. Financial Leverage = Total Assets / Equity
4. Profitability Reasons: For the analysis of the profitability group there are a number of measures. Using a percentage income statement that represents all items as a percentage of sales, the gross profit margin, operating profit margin, and net profit margin can be easily determined. The profitability analysis allows to relate what is generated through the profit and loss account with what is needed, of assets and own capital, to be able to develop the business activity.
1. Gross Profit Margin = Gross Profit / Sales
2. Profit Margin in Operations = Profit in Operations / Sales
3. Net Profit Margin = Net Profit / Sales
4. Return on Investment = Net Income / Total Assets
(Economic Profitability)
5. Return on Capital = Net Income / Capital
(Financial profit)
General Profitability (Cost by Weight) = Total Expenses / Total Income
Technique # 3: States of Change in Financial Position.
The States of Change in the Financial Position originated in the year 1908, when M. Cole explained the advantages of what he called: report where he came from and where he went. Accountants began using this statement as a way to explain the large discrepancy being reported and the funds that were available. However, the development of this type of information only took place from the year 1950. That is why company managers show great interest in learning about the movements of funds, since these significantly influence the financial health of the company. It should be noted that the term funds is often used for cash and working capital, which is why more emphasis will be placed on these.Cash is needed to pay off debts and working capital is financial relief for seasonal businesses with a view to paying off their debts in future periods.
The states that express the origin and application of funds are:
- The Statement of Change in the Financial Position or Statement of Origin and Application of Working Capital.
- Statement of Cash Flow or Cash Flows.
The Statement of Change in Financial Position reflects in detail the results of financial management. This summarizes the financing and investment activities of a company, as directly shown by the information that can only be obtained through an analysis and interpretation of the Statement of Situation and the Statement of Retained Earnings and Profits.
Based on working capital or working capital
It is important to note that when talking about working capital, two cases must be distinguished:
1. The working capital with which the company is actually operating.
2. The necessary working capital.
The necessary working capital is the working capital that a company needs to guarantee the production, circulation and service provision process without interruption. In our entities, many times the real working capital does not coincide with the necessary working capital, hence the importance for any entity of knowing the working capital that it really needs for the efficient development of its management.
Therefore we must see two definitions of working capital:
Gross working capital: Which constitutes the total current assets.
Net working capital: Represents the difference between current assets and current liabilities, that is, it reflects the amount of current assets that has not been supplied by short-term creditors. It is also called working capital, net rotation fund, working capital and its study is an indispensable stage of financial analysis, since it allows knowing the equity structure that best suits a company.
The working capital can be calculated:
Working capital = Current Assets - Current Liabilities
Having sufficient working capital is a guarantee for the stability of the company since, from the point of view of financing, it is that part of current assets that is financed with permanent resources.
The working capital can also be calculated:
Working capital = Own Capitals + Long Term Liabilities - Fixed Assets
Or what is the same:
Working capital = Permanent Resources - Fixed Assets
The administration of the working capital constitutes one of the most important aspects of the financial administration, since if the company cannot maintain a satisfactory level of working capital, it is likely that it will become insolvent and even be forced to declare bankruptcy.. The primary objective of working capital management is to manage each of the company's current assets and liabilities in such a way that an acceptable level of it is maintained.
The pillars on which the administration of working capital is based are sustained to the extent that good management can be done on the level of liquidity, since the wider the margin between the current assets of the organization and its liabilities the broader the ability to cover short-term obligations; however, there is a major drawback because when there is a degree of liquidity related to each resource and each obligation, when it is not possible to convert the most liquid current assets into money, the following assets will have to replace them since the more of these the greater the probability of taking and converting any of them to fulfill the commitments made.
Working capital can present different situations, which can be shown through graphs.
1) Maximum equilibrium situation. Ideal in a company and unlikely. Kw. = 0
Statement of Change in Financial Position based on Cash.
The main objective of the Statement of Change in Financial Position based on Cash is to analytically know the past regarding the sources and applications of cash, that is, this shows the movement of cash that leaves and enters the business, in addition which serves as the basis for planning what happens in the future. This statement differs from the Income Statement in that it summarizes the operations of the company that include income and expenses of savings banks without taking into account their relationship with the activities that generate profits and the process of balancing income and expenses.
The concept of a cash fund is not only based on the cash generated by operations, but is much broader. The business owner is responsible for the proper management and use of money; cash flow is an indispensable tool for this. The owner can assume a minimum level of cash or set any amount he wants to have available.
Cash flow is important to the entrepreneur for the following reasons:
- It allows to know the cash surplus or deficit in a period.
- Indicates when the minimum cash has been reached if this is stipulated by some owner's policy and therefore when the need to go to a loan begins.
- It allows to program the disbursements of money that each business must carry out in the period. This avoids costly improvisations for the entrepreneur.
- Allows you to schedule the financing of your operations in time (Amat, 2006)
In our country, this state, according to Financial Information Standard Number 2, is together with the Situation Statement and the Income Statement of obligatory elaboration.
Steps to prepare the Statement of Change in Financial Position based on Working Capital:
1. Determination of the variations of the State of Situation with the figures of each period.
Variation = Final Balance - Initial Balance
2. Determination of the variation of working capital.
Working capital = Current Assets - Current Liabilities
3. Classification of variations in origin (O) and application (A).
Origin: Movement of that account that involves an increase in working capital or cash.
Application: Movement of that account that involves a decrease in working capital or cash.
4. Preparation of the Statement of Change in the Financial Position.
In the case of the Statement of Change in Financial Position based on Cash, step 2, as it is characteristic of the State based on Working Capital, is not performed.
Technique # 4: Navigation Quadrant
Depending on other objectives that the company has, it must work to achieve two basic goals: profitability and solvency, for which policies are drawn up and are those that will determine the result of economic-financial management.
The financial analysis allows us to know in which quadrant the entity being evaluated is located and, based on its situation, reach conclusions and propose the pertinent recommendations on the approach of the economic policies to be evaluated and then implement them. (Urías, 1995).
- The study carried out by international and national authors substantiate the importance of economic-financial analysis as a business need of our times to achieve objective and timely decisions that are consistent with the future behavior of financial-economic management.
- The analysis of accounting information at the UBPC Carlos Manuel de Céspedes is not in correspondence with the current information needs that managers require, limiting their evaluative criteria on the behavior of the economic and financial position in the short and long term.
- With the proposal, a comprehensive analysis is carried out, managing to offer a diversity of elements of judgment to managers so that they can make a more proactive assessment related to the actions to be carried out.
- The evaluation of the results of the proposal corroborated its feasibility and application to guarantee the connection of the results with the current information needs demanded by the managers associated with decision-making.
Bibliography and notes used
- Abreu, M., (2010) Procedure to perfect the economic-financial analysis in the Company of Productions and Mechanical Services April 9. Bachelor Thesis in Accounting and Finance. Cuba. Province of Villa Clara, Central University Marta Abreu de las Villas
- Almaguer, RA, (2008) "Electronic Consultant for the Accountant and Auditor". DISAIC Consulting House, DISAIC Consulting House, available at:
- Amat, E., (2006) “The economic-financial analysis as a management tool. Generalities ”. Gestiopolis.com, available at:
- Amat, O., (1997) Analysis of Financial Statements. Foundations and Applications. 3rd edition. Barcelona, Editorial Gestión 2000, SA
- Berthier, A., (comp.), (2005) "The Harvard Reference System", available at:
- González, A.; Demestre, A. and C. Castells, (2001) Techniques to analyze Financial Statements. Havana, new people.
- González, A.; Demestre, A. and C. Castells, (2006) Financial Decisions: a business need. Collection of financial topics, Havana, Publicentro.
- Ministry of Finance and Prices., (2005) "Resolution No. 235/2005". DISAIC Consulting House, available at:
- Ministry of Sugar., (2003) General Regulations of the UBPC.
- Rivero, J., (1995) Analysis of the Financial Statements. Spain, Editorial Trivium.
- Urías, J., (1995) Analysis of Financial Statements. Madrid, Editorial Mc Graw-Hill.
- Weston, JF, (2006) Fundamentals of Financial Management. Volume I. Havana, Editorial Félix Varela.
