Financial evaluation and basic financial statements

I. THE FINANCIAL STATEMENTS

1.1 Basic Financial Statements

Basic financial statements are the primary means of supplying company information and are prepared from the balances in the company's accounting records as of a given date. The classification and summary of properly structured accounting data constitute the financial statements and these are:

Balance Sheet, Statement of Profit and Loss, Statement of Changes in Equity; and, Statement of Cash Flows.

1.2 Objectives of the Financial Statements

The financial statements basically have the following objectives:

Reasonably present information on the financial situation, results of operations and cash flows of a company; Support management in planning, organization, direction and control of business; Serve as a basis for making investment and financing decisions; Represent a tool to evaluate the management of the company and the ability of the company to generate cash and cash equivalents; Allow control over the operations carried out by the company; Be a basis to guide the policy of management and shareholders in corporate matter.

A. BALANCE SHEET

The companies' balance sheet includes the assets, liabilities and equity accounts. The assets accounts must be presented in decreasing liquidity order and the liabilities according to the decreasing payment enforceability, recognized in such a way that they reasonably present the financial situation of the company at a given date.

B. STATEMENT OF PROFITS AND LOSSES

The Statement of Profits and Losses includes the accounts of income, costs and expenses, presented according to the expense function method. In its formulation the following should be observed:

All items representing income or gains and expenses or losses originated during the period must be included.

Only items that affect the determination of net results should be included;

C. STATEMENT OF CHANGES IN NET EQUITY

The Statement of Changes in the Net Equity of the companies shows the variations occurred in the different equity account, such as capital, additional capital, investment shares, revaluation surplus, reserves and results accumulated during a given period.

D. STATEMENT OF CASH FLOWS

The Statement of Cash Flows shows the effect of changes in cash and cash equivalents in a given period, generated and used in operating, investing and financing activities.

The Statement of Cash Flows must separately show the following:

Cash flows and cash equivalents from operating activities. Operating activities are derived mainly from the main income-producing activities and distribution of goods or services of the company.

The cash flows from this activity are generally a consequence of the transactions and other cash events that enter into the determination of the net profit (loss) for the year. The cash flows and cash equivalents of the investment activities.

Investment activities include the granting and collection of loans, the acquisition or sale of debt instruments or shares and the disposition that may be given to investment instruments, real estate, machinery and equipment and other productive assets that are used by the company in the production of goods and services. Cash flows and cash equivalents of financing activities.

Financing activities include obtaining resources from shareholders or third parties and the return of the benefits produced by them, as well as the reimbursement of the amounts loaned, or the cancellation of obligations, obtaining and payment of other resources from creditors. and long-term credit.

MAIN FINANCIAL FORMULAS IN THE EVALUATION OF COMPANIES

A. LIQUIDITY INDICES

(1) GENERAL LIQUIDITY

It measures the company's result to cover its short-term commitments in a timely manner. In other words, it shows the current financial availability of the company for each sol of debt.

Current Assets Current

Liabilities

(2) ACID TEST

It measures the company's immediate payment capacity to pay off its short-term debts; that is, the availability of liquid assets that the company has to face its most demandable liabilities.

Current Assets - Stocks - Expenses Paid in Advance

Current Liabilities

(3) CASH LIQUIDITY

It measures the period during which the company can operate with its very liquid assets, without resorting to its sales flows.

Cash Banks + Negotiable Securities

Bank Overdrafts

(4) CASH LIQUIDITY

It indicates the real availabilities, to fulfill its short-term commitments

Cash Banks + Negotiable Securities + Commercial

Accounts Receivable Commercial Accounts Payable + Bank overdrafts

B. MANAGEMENT INDICES

(1) CASH ROTATION - BENCHES

It is a measure of the average period, in which the company can meet its current commitments, using very liquid resources including the time factor; the result indicates the number of times it rotates in said period.

(Cash and Banks + Negotiable Securities) x 360

Net Sales

(2) SALES ROTATION

Shows the number of times that a sale is reflected in accounts receivable, that is, the average term of credits granted to customers.

Net Sales

Commercial Accounts Receivable + Subsidiaries and Affiliates

(3) ROTATION OF CHARGES

Indicates the period in which the company is late in executing or making a collection.

Commercial Accounts Receivable + Subsidiaries and Affiliates

Net Sales

(4) ROTATION OF INVENTORIES

It allows analyzing the number of times that inventories change in each year.

Final Inventory Cost of Sales

(5) INVENTORY IMMOBILIZATION

It shows the days that the stocks remain without movement in the referred period

Inventory x 360

Cost of Sales

(6) ROTATION OF FIXED ASSETS

Indicates the number of times that fixed assets are used at a certain level of sales.

Net Sales Net

Fixed Assets

(7) ROTATION OF TOTAL ASSETS

It measures the number of times total assets are used at a given level of sales.

Net Sales

Total Assets

(8) COST OF SALES

Reflects the proportion of sales that are absorbed by its cost, it is used to make decisions regarding sales policies.

Cost of

Sales Net Sales

(9) FINANCIAL EXPENSES

To get an idea of the relative importance of financial expenses, in total expenses.

Financial

Expenses Total Expenses

C. SOLVENCY INDICES

(1) EQUITY DEBT

Evaluates the relationship between the total resources contributed by creditors and those contributed by the owners of the company, and this coefficient is also used to estimate the level of financial leverage.

Total

Equity Liabilities

(2) DEBT ASSETS

It measures the level of the total assets of the company, financed with resources contributed in the short and long term by creditors.

Total Liabilities Total

Assets

(3) DEBT OF FIXED ASSETS

It allows establishing the use of long-term financial resources in the acquisition of fixed assets.

Long-Term Debts

Net Fixed Assets

D. CAPITALIZATION INDICES

(1) CAPITALIZATION OF PROFITS