Jose Marti
Accounting today plays a leading role in the economic development of all types of organizations.
This technique records the transactions of all types of organizations. Hence, through the established records and the controls executed by the accountants, the executives of the companies see the progress and failures of the same and are able to analyze the causes that generated it, as well as how to direct their decisions in the performance of its commercial activity. The purpose of this work and its main objective is to obtain a financial analysis for the improvement of decision making, which consists of integrating the necessary techniques in the deep evaluation of the financial situation. This work was oriented to the analysis of the Financial Statements through the different techniques and methods in the Marketing Company of the SIME DIVEP Ciego de Ávila,with the aim of enabling the implementation of a procedure for the analysis and interpretation of the financial statements that enables greater knowledge and security in decision-making by the Board of Directors in the policy of development and Business Improvement; at the end of which it is expected to be able to achieve an improvement, both in the members of the Board of Directors, and in all those involved in decision-making and the application of determining policies for the company. The main result detected in the application of this procedure was: detecting a decrease in all commercial activity and a considerable deterioration in all the indicators that could put the company at risk.
INTRODUCTION
New experiences are acquired on the way to the improvement of accounting techniques that are applied to the Cuban economy and a call is made to the contribution of practical forms for economic development, which is so important for the growth of the country.
Overseers of the application in all spheres of the Guidelines of the economic and social policy of the Party and the Revolution to improve the quality of life and advance towards the future together with the Cuban Process, all entities are directed to better administration and planning of the economy, under the concept that “The socialist planning system will continue to be the main way to direct the national economy, and must be transformed into its methodological, organizational and control aspects. Planning will take into account the market, influencing it and considering its characteristics. "
Overall, Cuban entities are advancing in search of efficiency, making better use of their resources to increase labor productivity and achieve better results with less costs, based on the principle proposed by Cuban President Raúl Castro (2014)… “The economic battle constitutes Today more than ever, the main battle…, without a solid and dynamic economy… it will not be possible to advance in raising the standard of living of the population, nor will it be possible to maintain and improve the high levels achieved in education and health that free of charge they are guaranteed to all citizens ”.
Currently, Cuba is carrying out profound transformations in the economic sphere in order to mitigate the shocks of the crisis that the world is going through and to lay the foundations for the country's development, safeguarding the social conquests of recent decades. One of the decisive lines of the economic takeoff to which the country is urged is precisely that of Improvement initiated in the Cuban business system; This consists of a process of continuous improvement of the internal management of the company, whose main objective is to achieve competitiveness by increasing efficiency.
The perspective with which companies are viewed is rapidly changing and their results are no longer shown only as a company, but also as they affect the economic infrastructure, giving the management of these companies greater responsibility in decision-making as proposed. in Guideline number 8 of the Party and the Revolution: “The increase in powers of the entities' leaderships will be associated with the elevation of their responsibility regarding the efficiency, effectiveness and control in the employment of personnel, material and financial resources that drive coupled with the need to hold accountable those managers who, with decisions, actions or omissions, cause damages to the economy. ”
In the achievement of these levels of competitiveness, the management of Finance plays an essential role as a fundamental activity in the economic area; In this sense, it occupies a special place and this is specified in the General Bases for Business Improvement, the role of the company related to "Organizing, directing and controlling accounting and financial activity".
According to Borrero, Orlando (2006) "… business improvement constitutes the deepest, most extensive and transcendent economic change that has taken place in the Cuban economy."
With the adoption of business improvement, accounting returns to privileged levels, since the control of material and financial resources constitutes the cornerstone of the new management method.
Hence the importance of fully using the techniques, methods and procedures that allow showing the state in which finances are handled in the business organization.
In this way, the analysis of the financial situation of the companies is sufficiently detailed to allow managers to have a relevant level of information to be able to exercise efficient control over the economic-financial management of their entities and successfully develop the decision Administrative decision becomes a necessity of the first order.
In this sense, Alberti Villasante, H (2004-2005) states that: “The information provided by the analysis and interpretation of the financial statements of the entities reports to the people in charge of planning and control of the activities of the organization a series of advantages among which we can mention:
- Selection among various alternatives of the objectives, policies, procedures and programs of the company. Efficient use of technical and human material resources. Detect possible deficiencies in the operations of the different areas of the company. Obtain and articulate the material elements. and human that the planning and the organization indicate as necessary for the adequate financing of the company. It provides firm bases to channel the efforts towards the purposes of the company indicating if it is going on efficient ways, or it is necessary to take measures to correct failures. by comparing the results obtained with those expected. It is a valuable technique that indicates whether there is a balance between planning and execution.
These advantages speak for themselves about the importance of the analysis and interpretation of the financial statements for any entity that seeks to achieve efficiency in its economic and financial management.
In this sense, Fernández A. considers efficiency as "the greatest economic use of limited resources, it is synonymous with not wasting resources, maximizing the well-being of individuals or communities with the minimum of expenses", while efficiency as " the achievement of the proposed objectives ”.
Given the importance of obtaining accurate information, decisive in decision-making of managers, and Guideline number 18 of the Party and the Revolution: "The subsidy for losses to companies will be eliminated and, as a rule, they will not receive budget financing to carry out productions of goods and services ”, the need to obtain the widest and most accurate information on the real situation of the general behavior of the company is unmistakably manifested.
In an interview with members of the Board of Directors, the absence of a procedure for the Analysis of the Financial Statements according to the level of knowledge of all the members, which allows a complete understanding of the situation in which the entity finds itself and a more accurate forecast of the consequences that the application of policies, measures or decision-making may have for the future of the company.
As it could be seen, the current procedures are specifically based on the Financial Statements and Statements of Change in the Financial situation, in addition to other analyzes that do not cover all the accumulation of information necessary when facing the decision-making process, situation that limits the scope and objectivity of this process. If we take into account what González, B (1999) refers to, that… “one of the fundamental limitations that the administration presents in many institutions is that the consequences that the different decisions will have on the economic situation and financial… ”,and that financial analysis, in addition to helping to increase the effectiveness of the decision-making process, is also a powerful tool to exercise efficient control over the material and financial resources available to an entity, it can be inferred that the company will face situations, derived from the lack of a financial analysis procedure, which can ruin its economic-financial management despite the efforts and goodwill of its workers. Analyzing the characteristics of the company and the need for development in the process of understanding the economy by its managers, it was defined asthat they can destroy their economic and financial management despite the efforts and goodwill of their workers. Analyzing the characteristics of the company and the need for development in the process of understanding the economy by its managers, it was defined asthat they can destroy their economic and financial management despite the efforts and goodwill of their workers. Analyzing the characteristics of the company and the need for development in the process of understanding the economy by its managers, it was defined asscientific research problem:
There is no procedure for the analysis and interpretation of the Financial Statements that provides a level of information relevant to decision-making in the entity.
The accounting process developed in the entity in question is defined as the object of study.
The research developed to solve the problem posed pursues the following general objective: Apply a procedure for analysis and interpretation of the Financial Statements based on Financial Analysis techniques, which provides a level of information relevant to decision-making in the company. For which the Research Field would be framed in the Analysis of the Financial Statements of the institution, based on the fact that this research is applied, not experimental and is developed from a quantitative perspective.
For its best analysis, a Sample of the statements prepared in the last two years was selected, where the population is made up of the financial statements prepared by the entity during the last eight years.
The approach of the research objective generated the following hypothesis: If the application of a procedure of analysis and interpretation of the Financial Statements is completed from the techniques of Financial Analysis, then a level of relevant information will be provided that facilitates, maximizes and better ensure the results of decision-making by the company.
Taking this starting point they are determined as variables:
Independent Variable: Procedure for the Analysis of the Indices and Financial Statements.
Dependent Variable: Statements and Financial information of the company.
For the development of this study, the following were defined as specific research tasks:
a) Facto-perceivable stage:
- Determine the historical background of the analysis and interpretation of the Financial Statements. Epistemologically characterize the process of analysis and interpretation of the Financial Statements. Evaluate the current situation of the analysis and interpretation of the Financial Statements in the particularities of the Ministry to which it belongs.
b) Preparation stage:
¾ Prepare the proposal for an integrated financial analysis procedure to achieve greater control over the economic and financial management of the entity under study.
c) Application Stage:
- Corroborate the incidence of the proposed integrated financial analysis procedure to achieve greater control over the economic and financial management of the entity under study.
The general methodology of the research is based on the dialectical-materialist approach, as a general method of science and with the logic of theoretical, empirical and statistical inquiries, supported by different methods, techniques and instruments, which made possible the approach to the essence of the object. of research, and which are referred to below:
From the scientific level:
- Logical historical: in the establishment of the historical antecedents in the study of the process of analysis and interpretation of the Financial Statements. Analysis and synthesis: in the characterization of the object, the field of research in the interpretation of the information provided by empirical methods. Abstraction and concretion: for the elaboration of the Integrated Financial Analysis procedure and its theoretical foundation. The dialectic: in the determination of the contradictions in the state of knowledge of the object and the field of study, the system approach in the treatment of the interrelationships of all the methods and techniques that affect the process of analysis and interpretation of the states financial.
From the empirical level:
Fundamental empirical methods such as observation and complementary empirical methods such as unstructured interviews, observation and investigation of documents already prepared were used.
- Unstructured interview: Facilitated the obtaining of information and criteria from the people who take part in the process to control the entity's material and financial resources. Observation: It made it possible to obtain an overview of the development of the accounting and financial analysis process within the institution. Analysis of documents already prepared: It was used to obtain all the accumulation of information necessary for the analysis that is collected in the financial statements of the entity.
Other tools used as update sources were: Internet, as well as the use of computing with the Microsoft Word program for text and Microsoft Excel for tables and charts and the design on which the current economic information provided by the entity is based, which which enabled the foundation of this work, in addition to the Exact accounting system, used by the companies of the Business Group that is part of the entity in question.
The report of this work has been structured by two chapters, developing in the first the theoretical framework in which the research is framed and a second chapter explaining and carrying out the practical application; It is also made up of the conclusions and recommendations that are based on the results obtained, as well as the annexes made up of the different data sources.
CHAPTER I
THEORETICAL CONSIDERATIONS OF ACCOUNTING AND FINANCE.
1.1 Accounting and Finance as Science.
Accounting is the discipline that is responsible for determining, measuring and quantifying the wealth factors of companies, in order to serve for decision-making and control, presenting the information, previously recorded, in a systemic and useful way for the different stakeholders. It is a technique that systematically and structurally produces quantitative information, expressed in monetary units, about the transactions carried out by economic entities and certain identifiable and quantifiable economic events that affect it, in order to facilitate the various stakeholders, making decisions in relationship with said Entities. Other concepts indicate accounting as a part of the economy, and that in the field of the company its main task is to help the Administration area.
The final product of accounting is all the Financial Statements or Financial Statements that are the ones that summarize the economic and financial situation of the company. This information is useful for managers, regulators and other types of stakeholders such as shareholders, creditors or owners.
Finance studies the flow of money between individuals, companies or states. Finance is a branch of the economy and the Administration that studies the obtaining and management, by a company, individual or the State, of the funds it needs to fulfill its objectives and the criteria with which it has its assets. In other words, it studies what is related to obtaining and managing money and other securities such as securities, bonds, etc.
Finance is, therefore, about the conditions and opportunity in which capital is obtained, its uses and the payments and interest charged to money transactions. It is also often defined as the art and science of managing money.
Finance is a derivation of economics that deals with the issue related to obtaining and managing money, resources or capital by a person or company. Finance refers to the way resources are obtained, the way they are spent or consumed, the way they are invested, lost or made profitable.
The administration or management of money or capital, today has become an entire profession, an entire art due to the complexity of an environment in which countless variables and elements swarm. The techniques and ways to acquire and manage money are increasingly complex, more demanding.
The finance function is concerned with two fundamental aspects: determining the sources necessary to obtain resources and then efficiently allocating them for the various multiple and alternative uses within the company. In other words, try to get money and credit at the lowest possible cost, to achieve maximum performance or optimization of resources.
Finance studies multiple aspects and elements related to the entire process of obtaining and managing money or capital, they seek to improve the sources from which money is obtained and contribute to optimizing its use, which may result in their spending or investment.
That is why in finance a very good distinction is made between investing in an asset that conserves and even potentiates money, and the simple expense that only leads to the disappearance of money. The study of finance is very complex because they are closely related to an endless number of factors such as microeconomics, macroeconomics, economic policy, psychology, sociology, culture, and other aspects that one or the other form affect or they influence the decisions that human beings make regarding money. That is why in finance not all laws, rules or parameters are universal, since each society, each population has different elements that condition and modify human behavior towards money.
History of accounting
The study of accounting on a scientific basis had its first written manifestation in the works of Benedetto Cotrugli, a Croatian merchant, economist, scientist, diplomat and humanist based in Naples. In 1458 Cotrugli wrote the Libro de l'Arte de la Mercatura (Book of the Art of Commerce) which contains an appendix with an inventory and several annotations from a daily book.
Later, in 1494, Luca Pacioli (1445-1517) published in Venice his Summa de Arithmetica, Geometría, Proportioni e Proportionalita, in which Pacioli dedicated thirty-six chapters to the description of the accounting methods used by the main Venetian merchants; He also dedicated part of his work to the description of other commercial uses, such as company contracts, the collection of interest and the use of bills of exchange. It is said that in ancient times they used or knew how to read the famous brown language or "devil's language" that was used to investigate accounting in the classical era, where the accounting and accountants of that time were the ones who handled all the exchanges in the market.
According to Pacioli, Luca (1494), the entries in the daily book consist of two clearly differentiated parts: one beginning with the word Por (the debit of the accounting entry) and the other with the word A (the credit of the accounting entry), antecedent of the traditional accounting entry model. Since the use of the balance sheet was not customary at that time, it only describes the uses in the preparation of the checksum of sums and balances, which was used when the general ledger pages were exhausted.
These annotations were made under the rules of the double game, which Paccioli assured that he only taught, which was done long before by the merchants. The double entry ensures that for each increase in the asset in the debit there is a decrease in the liability and capital accounts within the credit. Likewise, there being a decrease in the accounts of the assets within the debit, there is an increase in the accounts of the liabilities and capital within the credit, thus making the rules of the double item.
The English translation was published in London by John Gouge or Gough in 1543. It is described as A Profitable Treatyce, also called The Instrument or Book to Learn the Good Order of Carrying the Famous Knowledge Called in Latin Dare and Habere, that is, Debit and Credit.
A small instruction book was published in 1588 by John Mellis of Southwark, in which he says, "I am the renovator and reviver of an ancient copy published here in London on August 14, 1543. John Mellis refers to the fact that the Accounting principles he explains (which is a simple double-entry system) follow "the Venice way." (…). Accounting has one objective: To give the necessary information for correct decision making.
History of the word Finance
The term finance comes from the Latin «finis», which means to finish or finish. Finance originates from the completion of an economic transaction with the transfer of financial resources (with the transfer of money the transaction ends).
These financial transactions have existed since man created the concept of money, but they were established in shape at the beginning of the modern era when the first lenders and merchants emerged establishing treaties on financial mathematics where topics such as interest calculation or management were mentioned. of Financial Statements (History of capitalism).
According to the types of users (External-Internal), they can be:
- Financial Accounting.
It provides essential information on the operation and financial status of the company to all interested economic agents (clients, investors, suppliers, Public Administrations, etc.). It is officially regulated and planned for everyone to understand. It is about giving evidence of the Competitiveness, Profitability and Productivity ratios in order to give them utility in the organization's activity.
- Management accounting.
Which includes Cost Accounting or Management Accounting. It is the internal accounting, for the calculation of the costs and economic and productive movements within the company. It is used to make decisions regarding production, organization of the company, etc.
1.2 Accounting Process and Cycle.
Accounting to achieve its purposes goes through stages. This sequence of accounting procedures used to record, classify, and summarize accounting information is called the accounting cycle or accounting process. The accounting cycle, therefore, is the set of accounting steps or phases that are repeated in each accounting period, during the life of a business. It begins with the first operation of each period, continues with the work of transferring the amounts recorded from the newspaper to the general ledger, the preparation of the trial balance, the worksheet, the financial statements, the posting in the daily book of the adjustment entries, their transfer to the general ledger accounts and, finally, the post-closing trial balance.It is important to highlight that the accounting cycle refers to the registration process that goes from the initial registration of transactions to the final financial statements, that is, it concludes with the preparation and interpretation of the Financial Statements that summarize the effects of these transactions on assets, liabilities and equity of a company.
According to Giovanny E. (2002): "The accounting cycle is the orderly and systematic process of accounting records, from the preparation of accounting vouchers and bookkeeping to the preparation of Financial Statements."
Phases of the accounting cycle:
- Balance sheet at the beginning of the reported period. Process of analysis of transactions and daily registration. Change from the journal to the general ledger. Preparation of the trial balance not adjusted to a worksheet (optional). Analyze adjustments and corrections, register it in the journal and transfer them to the journal. Preparation of an adjusted trial balance. Preparation of formal financial statements. Book closing.
The Generally Accepted Accounting Principles known as (GAAP) are a set of general rules and regulations that serve as an accounting guide to formulate criteria related to the measurement of the patrimony and the information of the patrimonial and economic elements of an entity. GAAP constitute parameters so that the preparation of the financial statements is based on uniform accounting techniques.
They were approved during the 7th Inter-American Accounting Conference and the 7th National Assembly of Graduates in Economic Sciences, which were held in Mar del Plata in 1965.
The principles of "double entry" is an accounting principle established by Fray Luca Pacioli (1445-1510) in 1494.
Its basic statement says:
- There is no debtor without a creditor, and vice versa. (There is no counterpart item.) One or more debtor accounts always correspond to one or more creditor accounts for the same amount. At all times the debit amounts must be equal to the credit amounts. Losses are debited and profits are credited The patrimony of the entity is different from that of its owner (s). The value of the resources of an entity is equal to the value of the participations that fall on it. The patrimonial components and the causes of their results are represented by means of accounts in which notes are recorded or record variations to the concept they represent. The balance of an account is the monetary value of the account at any given time. This balance is modified every time an operation has an effect on the components that it represents. The asset and expense accounts are debtors,and the liabilities, profit and equity are creditors. In all entries (entries), whatever the number of debits and credits, the sum of the balances must be the same. To cancel a previously registered amount, the account to be registered It must be the one that represents it and the amount must be the same previously registered. Every account has 2 sections: MUST AND HAVE.
The assets acquired by a company are subject, (financed) to the rights (participations) of the creditors –owners or interested parties outside the company– and as these rights cannot access the amount of the assets, the following equality exists: A = P + PN
1.3 Financial Statements.
Financial statements, also called financial statements, financial reports or annual accounts, are reports that institutions use to report the economic and financial situation and the changes it undergoes at a certain date or period. This information is useful for the Administration, managers, regulators and other types of stakeholders such as shareholders, creditors or owners.
Most of these reports are the end product of accounting and are produced according to generally accepted accounting principles, accounting standards, or financial reporting standards. Accounting is carried out by public accountants who, in most countries of the world, must register with public or private control bodies in order to practice the profession.
Financial statements are the most important tools that organizations have to assess the state they are in.
The objective of the financial statements is to provide information on the equity of the issuing entity as of a date and its economic and financial evolution in the period covered, to facilitate economic decision-making. It is considered that the information to be provided in the financial statements should refer to the following aspects of the issuing entity: x Its patrimonial situation as of the date of said statements x A summary of the causes of the result assignable to that period; x The evolution of its assets during the period; x The evolution of your financial situation for the same period, x Other facts that help to evaluate the amounts, moments and uncertainties of future cash flows that investors and creditors will receive from the entity for different concepts.
The main components of the Financial Statements are the following:
x State of financial situation (also called State of situation
Financial or Balance sheet) x Income statement (also called Profit and Loss Statement or profit and loss account)
x Statement of changes in equity (also called Statement of
Changes in Equity) x Statement of cash flows
x Notes to the financial statements (also called a “report”)
The financial statements are presented accompanied by notes and tables, which "reveal" or clarify points of interest that, for technical or practical reasons, are not reflected in the main body.
These financial statements are the basis of other reports, charts and graphs that allow defining profitability, solvency, liquidity, stock market value and other parameters that are fundamental when managing the finances of an institution. Usually when speaking of financial statements it is understood that they are those referring to the current or past situation, although it is also possible to formulate projected financial statements. Thus, there may be a projected statement of position, a projected income statement or a projected cash flow statement.
The information contained in the financial statements should have, to be useful to its users, the following characteristics:
- Relevance ReliabilityApproach to realityEssentialityNeutralityIntegrityVerifiabilitySystematicityComparabilityClarity
In accounting, the Income Statement or Profit and Loss Statement is a financial statement that shows, in an orderly and detailed way, how the result of the fiscal year was obtained during a determined period.
The financial statement is dynamic, since it covers a period during which the costs and expenses that gave rise to its income must be perfectly identified. Therefore, it must be applied perfectly at the beginning of the accounting period so that the information it presents is useful and reliable for decision-making.
Elements that make up the income statement: income, costs and expenses.
The statement of financial position, also called balance sheet or balance sheet, is a financial report or accounting statement that reflects the situation of the equity of a company at a certain time.
The balance sheet is structured through three equity concepts, assets, liabilities and equity, each developed in groups of accounts that represent the different equity elements.
The asset includes all those accounts that reflect the values of the entity. All elements of the asset are capable of bringing money to the company in the future, either through its use, its sale or its change. On the contrary, the liability shows all the certain obligations of the entity and the contingencies that must be recorded. These obligations are, naturally, economic: loans, purchases with deferred payment, etc.
Equity is the asset minus the liability and represents the contributions of the owners or shareholders plus the undistributed results. Equity or equity also shows the ability of the company to self-finance.
The basic accounting equation relates these three concepts:
Equity = Assets - Liabilities Being simply, it is:
The balance sheet is part of the annual accounts that all companies must prepare each year. Other components of the annual accounts are:
x Statement of Comprehensive Income (also called the Statement of Losses and
Profits or profit and loss account)
x Statement of changes in equity (also called Statement of
Changes in Equity) x Statement of cash flows x The memory
Balance sheet items are grouped and ordered according to established criteria that facilitate their interpretation and approval.
In assets, items are normally ordered according to their liquidity, that is, depending on how easily a good has to convert into money, the money deposited in the cashier is the most liquid there is. In Spain, according to the General Accounting Plan, the least liquid assets are placed first and the most liquid last, thus non-current assets are placed first and then current assets. In many countries in Latin America and the United States the order is the inverse of the one exposed, the assets are arranged from highest to lowest liquidity, firstly, the most liquid assets are placed to leave the least liquid at the end.
The liability is usually ordered based on the enforceability of the elements, an element will be more enforceable the shorter the term it expires. Capital is the least demandable element, while debts with suppliers are usually callable in the very short term. According to this criterion, in Spain, they are ordered from lowest to highest enforceability, net equity is placed first, then non-current liabilities and lastly current liabilities. In Latin American countries it is the opposite and they are ordered from greater enforceability to less enforceability.
1.4 Analysis of the Financial Statements.
The method for the analysis of the financial statements can be conceptualized as "The order that is followed to separate and know the descriptive and numerical elements that make up the content of the financial statements."
Financial analysis methods are considered as the procedures used to simplify, separate or reduce the descriptive and numerical data that make up the financial statements, with the objective of measuring the relationships in a period and the changes presented in various accounting years.
According to the way of analyzing the content of the financial statements, there are the following evaluation methods:
It is used to analyze financial statements such as the Income Statement and the Statement of Position, comparing the figures vertically.
It is a procedure that consists of comparing the homogeneous financial statements in two 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 results have been positive or negative; It also allows defining which ones deserve more attention because they are significant changes in gait. Unlike vertical analysis, it is static because it relates the financial changes presented in increases or decreases from one period to another. It also shows the variations with absolute figures, in percentages or in ratios, which allows us to widely observe the changes presented for their study, interpretation and decision-making.
The financial analysis allows determining the convenience of investing or granting credit to the business; likewise, determine the efficiency of the administration of a company.
The simple ratios procedure has great practical value, since it allows obtaining a limited number of ratios and index that serve to determine the liquidity, solvency, solidity and profitability in addition to the permanence of their inventories in storage, the periods of collection from customers and payment to suppliers and other factors that serve to widely analyze the economic and financial situation of a company.
One of the most used instruments to carry out financial analysis in entities is the use of financial ratios, since they can measure to a high degree the effectiveness and behavior of the company. These present a broad perspective of the financial situation, you can specify the degree of liquidity, profitability, financial leverage, coverage and everything that has to do with your activity. The financial ratios are comparable to those of the competition and lead to the analysis and reflection of the operation of the companies against their rivals.
They measure the ability of the company to meet its short-term obligations, that is, the potential ability to pay its obligations in the short term, refers to the ability of the company to cover its current obligations, that is, those that participate in the cycle short-term financial. They are called liquidity ratios, because the relationship between the sources of immediate cash (current assets) with the needs for immediate payment (current liabilities) is obtained.
Depending on the liquidity level of the current assets, various indices can be obtained, corresponding to the items taken for its preparation.
Based on this, Weston defines the following liquidity ratios: Current Ratio, Severe Ratio or Acid Test and Treasury Ratio.
- Current, Current or Solvency Ratio (RC):
It shows the ability of the company to meet its short-term obligations with its current assets. It measures the number of times that the business's current assets cover its short-term liabilities. It consists of the ability of the company to generate cash from its current assets and thus achieve its commitments. The greater the result, the greater the possibility that the liabilities will be paid since there are sufficient assets to be converted into cash when required. (that is, it measures the ability to cover immediate commitments). In general, this ratio should be close to 2, that is, for every $ 2 of current assets, the entity must have $ 1 of short-term liabilities, in order to meet its partial obligations or when they are due. If it is less than 2 it indicates that there is danger of suspension of payment,and if it is greater than 2 it indicates that there are idle assets, and therefore, profitability is lost. In any case, as already indicated, the appropriate values depend on the specific characteristics of the sector in which the company operates. The greater this ratio, the greater the overall liquidity of the company. The Current Ratio is calculated by dividing the Current Assets by the Current Liabilities.
- Severe Reason or Acid Test (RS):
It shows the company's ability to meet its short-term obligations with its most liquid assets. It represents the sufficiency or insufficiency of the company to cover the short-term liabilities, that is, it indicates the degree to which the available resources can meet the short-term obligations. It measures the ability to settle immediate debts. The value of this ratio must be approximately 1. (Its Range is from 1 to - 1, that is, having $ 1 of liquid assets for every $ of short-term debt). If it is much lower, there is danger of suspension of payment, and if it is higher, there is danger of having idle cash, since it will indicate that there is an excess of liquid assets that perhaps could be invested in other products to gain profitability.The Acid Test is calculated by dividing the Current Assets minus the Inventory by the Current Liabilities.
- Treasury Ratio or Bitter Evidence (RT):
It measures the entity's ability to pay in the short term with its most liquid assets. Represents Available Assets, that is, the most liquid to cover current liabilities. Represents the true liquidity of the entity. The theoretical ratio should generally be $ 0.10 to $ 0.20. To calculate it, the Available Assets (Cash in Cash plus Cash in Bank) are taken from the total Current Liabilities. The Cash Ratio is obtained by dividing the Cash by the Current Liabilities.
This ratio indicates the degree of creditors' participation in the financing of the entity's total assets, that is, the degree to which the company has been financed by debts both in the short and long term, the higher this is. The greater reason will be the amount of money lent by third parties that is used to try to generate profits. This ratio should generally be close to 50% ($ 0.50). It is calculated by dividing the Total Liabilities by the Total Assets.
It measures the effectiveness of the administration through the returns generated on sales and investments. These reasons give a more complete answer about how effectively the company is being managed, so every administrator must take care that their profitability ratios are as high or increasing as possible, since only through them, their business prospers. These reasons are of great importance because they will reveal the relationship between profit and other items.
- Profitability on sales or Profit Margin (RV):
It measures the ratio or percentage that the net profit represents in relation to the net sales that are analyzed, that is, it measures the ease of converting the sales into profit. It shows the profit generated by each peso that is sold. The theoretical ratio is $ 0.30 or 30%. The greater the result of this ratio, the better the economic situation of the company. Net Profit Margin is calculated by dividing Net Profit by Sales.
- Return on Capital or Equity (RC):
It shows the Profit or benefit that is generated on the invested capital and obtained by the entities over a period of time. It expresses how many pesos of net profit are obtained for each peso invested in equity. The theoretical reason for the business is $ 0.15 or 15%. The Capital Return ratio is calculated by dividing the Net Income by Stockholders' Equity or Equity.
- Return on Total Assets (RAT):
It shows the relationship between the benefits obtained and the investment or application of the resources. Indicates how many pesos of net profit are earned for each peso of asset investment. The theoretical ratio is $ 0.08 or 8%. This ratio is calculated by dividing Net Income by Total Assets.
The effectiveness with which the company uses the resources it has is measured. In the reasons for the activity, the rotations should be as high as possible and the average periods of inventories, accounts receivable and payable, vice versa. A high turnover ratio implies that the money the company has invested in current assets is highly mobile, that is, that it works a greater number of times, each time leaving its contribution to profit and thereby improving the profitability of the business. To measure effectiveness in this cycle, the following rotations are used:
Shows the number of times that the resources invested in Accounts Receivable and Documents receivable are converted into cash. The effectiveness of the rotation of your different collection rights depends on the level of your sales and the effectiveness of the collection policy; therefore, there must be an adequate correlation between sales and the balance of receivables. It is expressed in numbers of times. The Accounts Receivable Rotation is obtained by dividing the Net Sales by the Average Accounts Receivable.
Indicate how many days on average it takes the company to collect. The theoretical duration should be 30 days. It is calculated by dividing 360 days by the number of Rotations of the Items Receivable.
This ratio indicates the number of times Accounts and Documents payable to suppliers are paid; for purchases of goods in the period or year to which the net purchases refer, the times they buy goods and pay for them. It is expressed in number of times, but it is advisable to convert the previous ratio into numbers of days. The Accounts Payable Rotation is obtained by dividing the Purchases by the Average Accounts Payable.
Being: Purchases = Costs of Sales + Final Inventory - Initial Inventory
It expresses how many days on average the company takes to pay. The theoretical duration of the payment must be 30 days. It is calculated by dividing 360 days by the Rotation of Items Payable. This figure is significant only in relation to the average credit conditions granted to the company. Lenders and potential providers of business credit are interested, above all, in the average payment period, because it allows them to know the company's bill payment patterns.
Muestra con qué rapidez el Inventario de mercancías se convierte en Partidas por cobrar o Efectivo, o lo que es igual, el número de veces que la mercancía dan vueltas, es decir, las veces que se venden y se reponen. Permite analizar el ciclo de rotación del elemento económico seleccionado. Por lo general el resultado de este índice se expresa en veces. Mientras más alto sea el resultado de esta razón, mayor será la eficiencia en el uso de este recurso, pues indicará que los mismos permanecen inmovilizados menos tiempos. Lo que debe buscarse siempre es que la razón sea lo mayor posible, ya que esta rotación permite renovar las existencias y se obtienen mejores beneficios. La Rotación de los Inventarios se obtiene a partir de la división del Costo de Venta entre el Promedio de Inventario.
Represents the average number of days an item remains in the company's inventory. It is calculated by dividing 360 days by the Inventory Rotation.
The balances and cash reserves depend significantly on the production and sales management of the company, as well as the procedures it uses to collect sales and pay for purchases. These influences are best understood through analysis of the operating cycle and the company's cash conversion cycle. It is calculated through the difference between the sum of the Collection Cycle plus the Inventory Cycle and the Payment Cycle.
It is the number of times per year that Cash rotates:
Upon completing the analysis of the previous financial reasons, you must have sufficient criteria and bases to make the decisions that best suit the company, those that help maintain the resources previously obtained and acquire new ones that guarantee future economic benefits. also verify and comply with obligations to third parties in order to reach the primary objective of administrative management of administrative management, position itself in the market obtaining wide profit margins with a solid permanent validity against competitors, providing a degree of satisfaction for all the managing bodies of this activity.
A good financial analysis of the company can provide security to keep our company current and with excellent profitability rates.
This statement complements the information contained in the financial statements (Statement of income and situation) in relation to the sources and origins of the entity's resources, as well as their application or use during the same period, that is, it provides us with the changes suffered by the entity in its financial structure between two dates.
This state is very useful for the administration since it reveals among other things the capacity to generate the resources that the entity has.
1.5 Illnesses or Financial Imbalance.
There is a set of financial situations that slow down the development of the business and are known by the name of Financial Imbalance or Financial Illnesses, these can be of two types: due to excess or default, the main ones are the following:
- Excess Current Assets: Exists when, in general, the investments in the media and rights that are conserved in the short term are greater than their real needs. The situation may arise that the entity, in general, does not have an excess of Current Assets, but it may have an over-investment in one or more elements that make up this subgroup of the Assets. The excess of these short-term Assets may have been caused by the excess of one or more of its components, as set out below.On Cash Investment: When the investment of such Assets is out of proportion to the other Balance Sheet values, or when the real needs are below your balance. On investment in Accounts and Receivables:When the company has followed a liberal policy in granting loans or when collections have been deficient; therefore, there is no correspondence in sales and collections. On Inventory Investment: When the purchases of these means are out of proportion with the sales. Excess Net Working Capital: When there is not an adequate interrelation between the Current Assets. That is, the Current Assets are considerably higher than the levels of debt in the short term. On investment in Fixed Assets: When the investment of such Assets is out of proportion with the other values of the asset, or when there is no correspondence between the maximum production or service capacity with limiting capacity.On Investment of Inventories: When the purchases of these means are out of proportion with the sales. Excess of Net Working Capital: When there is not an adequate interrelation between the Current Assets, that is, the Current Assets are considerably higher than the levels of debt in the short term. On investment in Fixed Assets: When the investment of such Assets is out of proportion with the other values of the asset, or when there is no correspondence between the maximum capacity of production or services with the limiting capacity.On Investment of Inventories: When the purchases of these means are out of proportion with the sales. Excess of Net Working Capital: When there is not an adequate interrelation between the Current Assets, that is, the Current Assets are considerably higher than the levels of debt in the short term. On investment in Fixed Assets: When the investment of such Assets is out of proportion with the other values of the asset, or when there is no correspondence between the maximum capacity of production or services with the limiting capacity.to the levels of debt in the short term. On investment in Fixed Assets: When the investment of such Assets is out of proportion with the other values of the asset, or when there is no correspondence between the maximum capacity of production or services with the limiting capacity.to the levels of debt in the short term. On investment in Fixed Assets: When the investment of such Assets is out of proportion with the other values of the asset, or when there is no correspondence between the maximum capacity of production or services with the limiting capacity.
- Insufficiency of Net Working Capital: When there is no adequate interrelation between Current Assets and Current Liabilities; that is, the Current Assets are considerably insufficient or lower than the levels of short-term debt. Capital Insufficiency or Excess Debt: When the sources of financing are out of proportion; that is, when the own capital is inferior in relation to the foreign capital or Liabilities. Insufficiency of Utilities: When the utilities or benefits of the company are inferior to the invested capital, that is to say, there is no correspondence between the capital investment and the profits obtained.Insufficiency of Liquidity: When the entity does not have the capacity to pay immediately; You do not have enough available (effective) assets to meet your most pressing obligations.
CHAPTER II
PROCEDURE FOR THE ANALYSIS OF THE FINANCIAL STATEMENTS.
2.1 Characterization of the Entity under Study.
The entity under study until December 2015 was the SIME Marketing Company, DIVEP of Ciego de Ávila, which was founded in 1976, with the name of EPAVEP, in 2003, adopts the DIVEP trademark, created with the purpose of marketing within and outside the province and satisfying the demand for support to its customers, on which the responsibility for the development and completion of any order or contract falls.
DIVEP Ciego de Ávila was created as a State Marketing Organization on May 28, 2003, through Resolution No. 97/2003 of the Ministry of the Iron and Steel Industry, giving it independent legal personality and its own assets.
The constant renewal makes DIVEP guarantee the quality of its services through a highly qualified technical team and means of execution. DIVEP's main fields of activity are divided into stores located in Ciego de Ávila, where the DIVEP 1 Store and Mixed Store are located, in Morón a store with the name of the Municipality and likewise one in Cayo Coco, is also source of obtaining income from automotive repair services provided by the Provincial Automotive Services Workshop located in the provincial capital.
This company is engaged in the wholesale marketing of parts, pieces, components, aggregates, automotive accessories and light and heavy transport equipment, agriculture and construction, consumer goods produced by companies in the mechanical and steel industry, as well as those generated by the national industry that demands its capacity in the sales network, offering post-sales services, guarantee and reconditioning of commercialized productions, and providing merchandise distribution services.
In addition, the company provides automotive repair services in workshops located in the provincial capital of the province.
The entity has approved by the Executive Committee of the Council of Ministers the implementation of the Business Improvement, covered in Agreement # 4379 of April 11, 2002.
2.2 Characterization of the Financial Accounting Process.
The SIME DIVEP Ciego de Ávila Marketing Company is governed by the regulations and directives located at the central level from the DIVEP Group. Under these peculiarities, it uses various Softwares for the development of its accounting activity, these are: Exact Globe for Windows and Mistral Caribe. The accounting process is based on Mistral Caribe, software of Cuban origin created with the purpose of using the two currencies that circulate in the country, bearing in mind that Exact is a European software prepared to work in a single currency and given that the Products that are marketed are purchased with components in both CUC and CUP, making it impossible to use them in the inventory sub-systems, except through applications developed by some companies but with a high level and complexity.
Exact Software is considered one of the safest and most accurate nationally. It is known that from this model the basis for the creation of the Cuban Software Versat - Sarasola arises, towards which the DIVEP Group is expected to emigrate soon.
The Exact software operates through modules, which are obtained independently and the DIVEP Group only owns those of Accounting and Tangible Fixed Assets.
Given the characteristics of DIVEP, whose function is the commercialization of Cuban services for the creation of the Mistral Caribe Software, which is created with the specificities required by the Exact for data import. In this way, inventories are controlled in the Mistral Caribe, which is installed and parameterized for stores, warehouses, workshops and points of sale. This is where the entries, exits, invoices, receptions and other movements of products and services originate.
Although the Mistral Caribe does not have all the security and quality characteristics with which the Exact operates, it does adapt to the needs of the company, although it is still a software in development.
After this accounting information is processed and the export of this data that gives rise to the entire accounting process is carried out, it is imported into Exact through a file that allows the data to be rectified, since there are still account problems. and consecutive and the rectification of these data is essential before being entered into the Exact.
The Exact accounting module operates through the preparation of vouchers that are classified as:
| Concept | 2016 | 2015 | Ideal |
| Current Assets | 4´045´553.95 | 15´373´539.73 | |
| Current Liabilities | 513´213.45 | 11´931´372.00 | |
| RC value = | 7.9 | 1.3 | two |
Graph 2.5.1.1 - Current Assets and Liabilities (See PDF)
Graph 2.5.1.2 - Values of Current Ratio
At the end of 2015, this indicator has 7.9, a value that is well above the one it had in 2014, which amounted to $ 1.3, only being $ 0.7 lower than the ideal value, so that at the end of the last year analyzed, the entity is able to cover all your debts with your current assets and still support yourself. At the end of 2015, the company considerably reduces credit purchases, as well as sales, profits and performance that bring about a decrease in obligations, since these are the concepts that most affect this item. Under the analysis of this indicator, a potential risk of loss of company profitability can be seen.
The result obtained in this last year presents the Financial Illness "Excess Working Capital" because there is no adequate interrelation between the Current Assets and Current Liabilities, that is, the Current Assets are considerably higher than the debt levels in the short term.
It is recommended to the company, given that its situation allows it, to make the boom in credit purchases possible, as well as directing policies to inventory rotation avoiding the appearance of idlers.
- Severe Reason or Acid Test (RS)
| Concept | 2015 | 2014 | Ideal |
| Current Assets | 4´045´553.95 | 15´373´539.73 | |
| Inventories | 1´727´825.27 | 3´599´278.26 | |
| Current Liabilities | 513´213.45 | 11´931´372.00 | |
| RS value = | 4.5 | 0.9 | one |
Graph 2.5.1.3 - Current Assets, Inventories and Current Liabilities (See PDF)
Graph 2.5.1.4 - Severe Ratio or Acid Test Values
The results show that in 2014 there was $ 0.9 of assets available to pay each peso of short-term debt, where an increase can also be observed at the end of 2015, where there was $ 4.5.
The increase in this Ratio is manifested due to the considerable decrease in Current Liabilities that the company had at 95.7% below 2014.
- Treasury Ratio or Bitter Evidence (RT)
| Concept | 2015 | 2014 | Ideal |
| Cash | 1´630´442.76 | 4'326'226.75 | |
| Current Liabilities | 513´213.45 | 11´931´372.00 | |
| RT value = | 3.2 | 0.4 | 0.10 <RT> 0.20 |
Graph 2.5.1.5 - Cash and Current Liabilities (See PDF)
Graph 2.5.1.6 - Treasury Ratio or Bitter Evidence Values
It is shown that in 2014 there was $ 0.4 of cash to cover each peso of short-term debt, a value that was relatively close to the ideal value, so that performance can be classified as favorable; In 2015 there is also a considerable increase in this indicator, since there was $ 3.2 of cash to cover each peso of debt, growing by $ 2.8 compared to the previous year. This is based on the decrease in Liabilities by 95.7% compared to one period with another.
2.5.2 Leverage, Coverage or Indebtedness Reasons
| Concept | 2015 | 2014 | Ideal |
| Total Liabilities | 5´242´737.64 | 15´637´197.60 | |
| Total Assets | 9´618´331.72 | 19´986´960.42 | |
| Percent | 100.0 | 100.0 | |
| RE value = | 54.5% | 78.2% | 50.0% |
Graph 2.5.2.1 - Total Liabilities and Total Debt Graph (%) (See PDF)
2.5.2.1 - Assets Ratio Values.
At the end of 2014, an overuse of the debt is seen as a source of financing because for each peso of assets it has been financed with more than $ 0.78 with liabilities. Situation that tends to stabilize at the end of 2015 reaching only 4.5% below the theoretical ratio index at 50%.
This decrease is due to the company's policies to take care of its credit situation so that it gains reliability in the suppliers for its prompt payment, always accepted by the regulations in contracts. Also contributing to this reduction was the decrease in the Obligations Declared with the Budget and the full execution of the Accumulated Expenses Payable.
2.5.3 Profitability Ratios
| Concept | 2015 | 2014 | Ideal |
| Net profit | 92´644.85 | 131´885.71 | |
| Net sales | 3´227´597.06 | 11´044´599.52 | |
| Percent | 100.0 | 100.0 | |
| RV value = | 2.9% | 1.2% | 30.0% |
Graph 2.5.3.1 - Total Liabilities and Total Profitability Graph on sales (%)
2.5.3.2 - Assets Ratio Values.
The profit obtained on each peso sold in 2015 is $ 0.02, representing an increase of $ 0.02 when compared to the previous year, although Net Income decreased by 29.8%, that is, by $ 39´240.86, given by the decrease in sales by 33.0%, but this indicator is favored by reducing expenses by an average of 70%. Although, the company recommends a greater analysis of expenses and commercial margin rates for an increase in profitability.
| Concept | 2015 | 2014 | Ideal |
| Net profit | 92´644.85 | 131´885.71 | |
| Heritage | 4´375´594.08 | 4´349´762.82 | |
| Percent | 100.0 | 100.0 | |
| RC value = | 2.1% | 3.0% | 15.0% |
Graph 2.5.3.3 –Net Income and Equity. (See PDF)
Graph 2.5.3.4 – Return on Capital
This indicator is also affected, since the company presents a Net Income on the smallest assets, increasing slightly in 2015 by 0.9%, indices that remain well below the value of the Theoretical Ratio. This is due to the low percentage of commercial margin that the company has approved for its operations.
| Concept | 2015 | 2014 | Ideal |
| Net profit | 92´644.85 | 131´885.71 | |
| Total of
Assets |
9´618´331.72 | 19´986´960.42 | |
| Percent | 100.0 | 100.0 | |
| RAT value = | 0.9% | 0.7% | 8.0% |
Graph 2.5.3.5 - Net Income and Total Assets Graph 2.5.3.6 - Return on Total Assets (%)
The result of the company is unfavorable for both years, since they are below the theoretical ratio, that is, it earns in 2015 $ 0.09 for every $ 1.00 of assets. Although the ratio varied slightly compared to 2014, it still has the same result since it only increased by $ 0.02. This situation was given by the decrease in profits and even more in assets, which are reduced by 51.9%.
2.5.4 Activity Reasons
Average Accounts Receivable:
| Concept | 2015 | 2014 |
| Initial balance | 6´639´214.62 | 5´945´662.23 |
| Final Balance | 469´112.73 | 6´639´214.62 |
| Average | 3´554´163.67 | 6´292´438.42 |
Graph 2.5.4.1 - Behavior of Accounts Receivable in the periods analyzed (See PDF)
Accounts Receivable Rotation:
| Concept | 2015 | 2014 |
| Net sales | 3´227´597.06 | 11´044´599.52 |
| Average C x C | 3´554´163.67 | 6´292´438.42 |
| RCC = | 0.9 | 1.8 |
Accounts Receivable Cycle:
| Concept | 2015 | 2014 |
| Days | 360 | 360 |
| RCC | 0.9 | 1.8 |
| Cycle = | 400 | 200 |
Graph 2.5.4.4 - Cycle of Accounts Receivable (in days). (See PDF)
In both years the installation presents an unfavorable situation regarding the handling of its accounts receivable, behaving well above the theoretical reason (30 days). For 2014, accounts receivable rotate 0.9 times, taking up to 400 days to collect, that is, a collection cycle is not completed in the year and the balances go from one year to the next. In 2014, although the rotations are doubled, only one is completed, having a value of 1.9 times per year and the collection cycle is halved.
Although there is an improvement in these indicators, the company still presents an extremely dangerous situation, since due to this many of the accounts may become uncollectible.
This credit policy dates back to the fact that the sale is oriented between the companies of the same DIVEP group, seeking to balance the products that are marketed throughout the country and often the payments are not executed until after the sale of these. In addition, given this situation, priority is given to payments to third parties, which are the suppliers of the Business Group as a whole.
This credit policy, although not the most favorable for the company, is due to guidelines seeking to contribute to the equitable development of the country.
Purchases = Costs of Sales + Final Inventory - Initial Inventory
Purchases:
| Concept | 2015 | 2014 |
| Selling Costs | 10´989´671.34 | 10´164´849.55 |
| Final inventory | 1´727´825.27 | 3´599´278.26 |
| Initial inventory | 3´599´278.26 | 4´001´502.59 |
| Purchases | 9´118´218.35 | 9´762´625.22 |
Graph 2.5.4.5 - Costs of Sales, Final and Initial Inventories. (See PDF)
Graph 2.5.4.6 - Purchasing Behavior
Average Accounts Payable:
| Concept | 2015 | 2014 |
| Initial balance | 5´387´616.00 | 4´980´611.14 |
| Final Balance | 231´162.23 | 5´387´616.00 |
| Average | 2´809´389.11 | 5´184´113.57 |
Graph 2.5.4.7 - Behavior of Accounts Payable in the periods analyzed (See PDF)
Accounts Payable Rotation:
| Concept | 2015 | 2014 |
| Purchases | 9´118´218.35 | 9´762´625.22 |
| Average C x P | 2´809´389.11 | 5´184´113.57 |
| CPR = | 3.2 | 1.9 |
Accounts Receivable Cycle:
| Concept | 2015 | 2014 |
| Days | 360 | 360 |
| CPR | 3.2 | 1.9 |
| Cycle = | 112 | 189 |
Graph 2.5.4.10 - Accounts Payable Cycle (in days). (See PDF)
In 2014, the turnover of accounts payable is 1.9 times, taking 189 days to pay its obligations. This situation improved in 2015, this is due to the increase in turnover by 1.3 times, so pay days were reduced to 112 days. Even so, it is well above theoretical reason in 90 days. Due to the aforementioned, although it improved in the last year, the entity has poor payment management.
This situation is due to the purchases made from the other companies of the DIVEP Group, with which there is a program to comply with and many times there is not enough liquidity or the immediate need to make the payment, for which aged balances are inferred.
Average Inventory:
| Concept | 2015 | 2014 |
| Initial balance | 1´727´825.27 | 3´599´278.26 |
| Final Balance | 3´599´278.26 | 4´001´502.59 |
| Average | 2´663´551.76 | 3´800´390.42 |
Graph 2.5.4.11 - Behavior of Inventories in the Periods analyzed (See PDF)
Inventory Rotation:
| Concept | 2015 | 2014 |
| Costs of sale | 10´989´671.34 | 10´164´849.55 |
| Inventory
Average |
2´663´551.76 | 3´800´390.42 |
| RI = | 4.1 | 2.7 |
Graph 2.5.4.12 - Costs of Sales and Graph 2.5.4.13 - Values of the Average Rotation of Inventories. Inventory (Times). (See PDF)
Inventory Cycle:
| 2015 | 2014 | |
| Days | 360 | 360 |
| CPR | 4.1 | 2.7 |
| Cycle = | 87 | 133 |
Graph 2.5.4.14 - Inventory Cycle (in days). (See PDF)
In 2014, Inventories rotate 2.7 times, taking approximately 133 days. In 2015, turnover increases by 1.4 times and the inventory life span decreases by 46 days, which means that there is a favorable trend. The behavior of this ratio is based on the 8.1% increase in Cost of Sales.
| 2015 | 2014 | Ideal | |
| (+) Collection Cycle | 400 | 200 | 30 |
| (+) Inventory Cycle | 87 | 133 | fifty |
| (-) Payment Cycle | 112 | 189 | 30 |
| Cash Cycle | 375 | 144 | fifty |
Graph 2.5.4.15 - Cash Conversion Cycle (in days). (See PDF)
It is appreciated that in 2014 the Cash Cycle is 144 days, the time that elapses from the moment in which it makes an outlay for the purchase of products until the moment in which it is charged for sale by marketing. The result shows that it is above the ideal result in 94 days. Despite this situation, this indicator continues to increase in 2015, reaching 375 days, representing 325 days above the established ideal.
| Concept | 2015 | 2014 |
| Days | 360 | 360 |
| EC | 375 | 144 |
| Rotation = | 0.9 | 2.5 |
Graph 2.5.4.16 - Cash Rotation (in times). (See PDF)
In 2015, it is estimated that cash rotates 0.9 times, that is, it does not reach a complete rotation, this result is not favorable, since it decreases with respect to the previous year 1.6 times, determined by an increase in the Cash Conversion Cycle in 231 days. Therefore, an unfavorable trend is seen as it takes longer to recover the cash in order to continue operating with it more quickly.
It can be concluded regarding the financial situation, that the company, as a result of the restructuring to which it was subjected, has suffered a decrease in all indicators, as a result of which it can enter a situation where it is not possible to maintain profitability. For which it is essential to make administrative decisions in search of alternatives that change the situation in which the institution has been immersed.
CONCLUSIONS
At the conclusion of this investigation, a procedure for the analysis and interpretation of the Financial Statements based on Financial Analysis techniques has been developed and applied, through which it has been possible to conclude that:
- The company shows a considerable decrease in all the balance sheet items as a result of the reduction to which it has been subjected, losing more than half of its profitability, as well as its assets, liabilities and capital. A considerable deterioration has been detected in all the indicators analyzed, a fact that may put the company's livelihood at risk. An analysis is required in search of new alternatives that make it possible to change the course of the situation analyzed, since this situation may cause future losses or the capitalization of the same.
RECOMMENDATIONS
Based on the results obtained at the end of the application of the procedure of analysis and interpretation of the Financial Statements based on techniques of Financial Analysis, it is recommended:
- Suggest that the financial aspect of the company be considered first, since this will contribute to making a better decision and planning according to the needs of the entity. Take into consideration at different levels the results of this work for the definitive approval of its implementation. Regularly implement this procedure of analysis and interpretation of the Financial Statements based on Financial Analysis techniques for greater security in decision-making by the company.
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