The analysis of the structure of the Balance Sheet base period 1998-2001 shows us a commercial company, which presents the structure where its current assets have been reduced considerably from 19,076 million to 14,924, representing a decrease of 188.07% compared to 1998, between others and as a result of changing its long-term collection policy in 2000, the period under analysis shows a decrease in investments equivalent to -4.32% in 2001. Of which 4.151 million were allocated to the short term (46.78%), and the balance of 2,710 million, in the long term (53.22%).
This decrease was the product of a decrease in the foreign capital, when its position decreased from 76.09% to 68.67%. On the other hand, own capital increased from 23.91% to 31.33%. Strengthening the equity part of the company.
Structural analysis
Concepts Dec-98 (%) Dec-01 (%) Variation (%)
Investments
- Current assets 19,076,024 57.21% 14,924,069 46.78% -4,151,955 188.07% Non-current assets 14,268,936 42.79% 16,979,613 53.22% 2,710,677 -288.07% Total 33,344,960 31,903,682 -1,441,278 -4.32%
Financing
- Foreign capital - Liabilities 25,370,856 76.09% 21,898,026 68.67% -3,472,830 138.26% Own capital 7,974,104 23.91% 9,989,371 31.33% 2,015,267 -238.26% Total 33,344,960 31,887,397 -1,457,563
Financial Ratios Analysis:
1. Current Liquidity Index
As can be seen in 1998, when we took the company as a basis for each sol of current liabilities, it had 1.15 soles of current assets to face the most emerging debts, applying the trend technique, in 98 it took 100%, already in 99 increases to 9%, which decreased to -14% in 2001; which shows that the company has lost liquidity. As you can see, this behavior is due to the fact that even when current assets increase over the years, current liabilities also increase in the period
Concepts 1998 1999 2000 2001
Current Assets 18,296,519.16 20,279,599.00 15,529,063.00 13,580,233.00
- Current Liabilities 15,894,277.07 16,159,121.00 15,890,229.00 13,692,669.00 Current Ratio 1.15 1.25 0.98 0.99 Concepts- Trends 1998 1999 2000 2000 Current Ratio 100% 9% -15% -14% Current Assets 100% 11% -15% -26% Current Liabilities 100% 2% 0% -14%
2. Severe Test
Severe testing is another way to test the adequacy of circulating assets, and it can be seen that it has shown a considerable decrease when compared to previous years.
This is verified with the acid test which in 1998 was S /.0.19 and in 2001 0.11, that is, for every S /.1 of current liabilities there are S /. 0.19 of assets with low liquidity to pay urgent debts and in 2001 it behaved at S /. 0.11
This means that, in the interval from 1998 to 2001, Rapidly realized Assets decreased from S /. 3'026,087.01 up to S /. 1,573,659.00, which informs us that the company does not have good support before an emergency, which would require a bank overdraft.
3. Working Capital
Working capital experienced an increase in 1999 compared to the previous year (1998), by 72%, interesting data since the company shows confidence to pay the debts of the year, not being so in 2000 and 2001 where it also decreased -115% and -105% compared to the base year (1998), evidencing a loss of liquidity; reason why at the moment the company shows little reliability to pay debts to possible investors.
Concepts 1998 1999 2000 2001
- Current Assets 18,296,519.16 20,279,599.00 15,529,063.00 13,580,233.00 Current Liabilities 15,894,277.07 16,159,121.00 15,890,229.00 13,692,669.00 Net Working Capital 2,402,242.09 4,120,478.00 -361,166.00 -112,436.00
Concepts 1998 1999 2000 2000
- Current Assets 100% 11% -15% -26% Current Liabilities 100% 2% 0% -14% Net Working Capital 100% 72% -115% -105%
4. Indebtedness.
In the year 99 the Debt Ratio decreased with respect to 98, which shows that S /. 2.95 of Liabilities in 1999 and S /. 2.55 in 2000 for S /. 1 of the Equity, in the year 2001 there is a considerable decrease where the Company uses S /. 2.19 of Liabilities for each S /. 1 of Equity, although the maximum allowable range is 1: 1, it is observed that the company works with foreign capital.
Concepts 1998 1999 2000 2001
- Total Liabilities 25,370,856.14 26,989,194.00 25,025,909.00 21,898,026.00 Total Equity 7,974,103.67 9,143,819.00 9,680,122.00 9,989,371.00 Debt Ratio 3.18 2.95 2.59 2.19
Concepts 1998 1999 2000 2000
- Total Liabilities 100% 6% -1% -14% Total Equity 100% 15% 21% 25% Debt Ratio 100% -7% -19% -31%
5. Accounts receivable rotation
It can be analyzed that this is good since after having had a lousy collection policy, it has been remarkably improved since now the collection of an invoice lasts 37 days, but it can be improved and make this rotation have an average of 20 to 25 days and collection revenue is significantly improved.
Profit and Loss Statements.
Operating margin.
As you can see the Operating Result compared to 1998 decreased considerably, from 100% to 58% in 2001, this indicator informs us that business in the company instead of growing, which decreased by 42%, this can be due to poor work of the business group, the marketing group, poor quality of the finished products, etc., where for each S /. 1 for sale were obtained in 1998 S /. 18.84 decreased to S /.10.89 in gross profit from operations. So we can affirm that business decreased but it was not very profitable.
Concepts 1998 1999 2000 2001
- Operating Income 4,012,920.16 3,389,133.00 3,127,018.00 3,165,476.00 Net Sales 21,299,016.00 25,442,800.00 29,461,868.00 29,057,448.00 Operating Margin% 18.84 13.32 10.61 10.89
Concepts 1998 1999 2000 2001
- Profit from Operations 100% 84% 78% 79% Net Sales 100% 119% 138% 136% Operating Margin% 100% 71% 56% 58%
Cost effectiveness
The Return on equity (ROE) and on assets (ROA) to 2001, was 31.69% and 9.92% respectively, against 50.32% and 12.03% of profitability compared to the 1998 financial year, with respect to this comparison a decrease of - 37% in equity profitability and a decrease in ROA of -18% percentage points.
Concepts 1998 1999 2000 2001
- 4012920.16 3389133.00 3127018.00 Utitidad Operational 3,165,476.00Total assets (net) 33344959.81 36133013.00 34706031.00 7974103.67 9143819.00 9680122.00 31,903,682.00Patrimonio Net 9,989,371.00 ROE 50.32% 37.06% 32.30% 31.69% 12.03% 9.38% ROA 9.01% 9.92%
Concepts 1998 1999 2000 2000
- Net Income 100% -16% -22% -21% Total Assets (Net) 100% 8% 4% -4% Equity 100% 15% 21% 25% ROE 100% -26% -36% -37% ROA 100% -22% -25% -18%
Conclusions.
The company showed little confidence to defray its expenses with the decrease in Working Capital.
Current Liquidity from 1.15 to 0.99, in addition to decreasing with respect to the previous year, was never adequate to support current liabilities. what does not give solidity to the company, showing itself in the Acid Test, this decrease in current Assets was caused by the change in the collection policy, transferring its accounts receivable from short term to long term. Purchases and average sales of merchandise improved at the end of 2001, reaching the Inventory Rotation from 248 to 181 days.
The business of the company did not grow nor did it become more prosperous, showing a great decrease in the operating profit margin, since for each S /. 1 for sale only from S /.18.84 (1998) down to S /.10.89; Net profit percentage also shows a figure of only 2.30% of total sales
Recommendations:
The company must evaluate the market in its prices. Checking its production cost, operating expenses and unit costs, to these add a profit factor (%) as well as salaries and advertising (%). Depending on your market, avoiding having on stock.
In the administrative part, the policy of reducing it should be given since it has increased, due to poor administration, since this indicates that salaries have increased and without positive results, since although sales have increased and It should have greater profit, this is not reflected since the expenses have increased.
Reduce the Financial Expenses, since the Company is living on Bank loans and what would be necessary to analyze the item of Miscellaneous Expenses since this expense is very high and this item would have to be corrected.
