Financial management is based on the study of financial statements to be able to provide directors or managers with the financial information necessary for decision-making.
For the study of financial statements, analysis methods can be used, which help to obtain results on the current situation of the company, both its errors and its successes presented during the fiscal year or past fiscal years.
The financial report must meet some requirements for the presentation of financial information, whether internal or external to the company.
The preparation of the Financial Statements is not enough, but also their analysis, since they will be a tool for decision-making.
Carrying out the analysis by means of financial reasons is of utmost importance since they allow evaluating the results of the company with the relationships of one figure with another within the financial statements and allows evaluating the results obtained by the company.
Keywords: Financial statements, financial information, financial analysis.
Abstract.
Financial management is based on the study of the financial statements in order to get the directors or managers of financial information necessary for decision-making.
For the study of the financial statements can be used analysis methods, which help achieve results on the current situation of the company, both their mistakes and their successes presented during the year or previous years.
The financial report must comply with certain requirements for presentation of financial information whether internal or external to the company.
Not enough preparing the financial statements, but also the analysis of them, as they will be a tool for decision making.
The completion of the analysis using financial ratios is very important as they allow evaluating the results of the business relationships of a figure with another within the financial statements and assesses the results achieved by the company.
Keywords: Financial statements, financial reporting, financial analysis.
INTRODUCTION
At present, Cuba is carrying out profound transformations in the economic sphere in order to lay the foundations for achieving greater productive development in the country, allowing it to safeguard the social achievements of the last decades.
In this sense, the President of the Councils of State and Ministers CASTRO, R. (2010), stated: “The economic battle constitutes today, more than ever, the main task and the center of the ideological work of the cadres, because of it the sustainability and preservation of our social system depends ”.
In Cuba, the use of financial analysis in the context of the Cuban state company has been limited, the analysis of the financial health of the company was not the cornerstone of Cuban executives, its center was directed to other areas and not precisely to the finance, spending a lot of time analyzing production results (compliance with production plans), leaving behind the economic-financial analysis.
In the Project of guidelines of economic and social policy to the VI Congress of the Communist Party of Cuba, specifically in numbers 7, 13 and 203 it is proposed that the business system must work with efficiency, organization and effectiveness; having the power to define the financial instruments to be used to guarantee a specialized banking service.
In companies of any size, accounting and financial analysis should be a fundamental instrument for making decisions, taking some actions, sometimes vital for the growth and continuity of companies. The reality is that all the good CFOs of the great world companies use accounting and financial analysis to analyze and diagnose the present of the business and shape its future.
Financial information is the compilation within the accounting of the diversity of operations that take place in the company, which is concentrated for the use of managers, directors or owners and which is essential for the administration and development of companies. This information is processed and grouped into what we call Financial Statements (EF) which express the financial situation of the company at a certain date, as well as its results or changes in it.
However, it is useless to have excellent records and financial statements, if you do not understand the figures therein and, even worse, if you do not know what to do with them. No procedure, however brilliant, will be successful without a basis for its practical application. Therefore, it is important that company directors and managers know the basic financial statements, as well as their quick and easy interpretation for better decision making.
The challenge for financial statements is to ensure that accounting helps to synchronize and have important information, which provides adequate guidance to directors and managers for better decision-making.
In general, in most companies, financial economic analysis concentrates nothing more on the study and interpretation of financial statements through tables or analysis schemes in a formal and not very analytical way, Accounting then becomes a science and an art to something schematic which brings as a consequence that financial economic analysis has limitations and its application is not deep enough.
Considering the aforementioned, this investigation is of vital importance, since in the UEB CENTRO ESTE provincial in question does not have a financial analysis that allows grouping the main valuation tools that exist and therefore the management lacks elements of judgment to correctly determine the financial position of the company.
Due to the aforementioned, it is posed as a scientific problem: How to provide adequate information for the interpretation of financial statements that serves as a basis in making managerial decisions?
It is proposed as an object of study:
The Analysis and Interpretation of the financial statements.
This project pursues the following objective:
Implement a financial analysis procedure through the application of methods and techniques that facilitate the decision-making process in the UEB CENTRO ESTE Province of Ciego de Ávila.
The field of action is established: The financial analysis process.
In this sense it is exposed as a hypothesis: If a procedure of financial and economic analysis is implemented based on methods and analysis techniques, then information appropriate to provide a basis for the improvement of managerial decision making in the UEB Center East will be achieved Camagüey province
It should be noted that this type of problem is largely derived from the ignorance and use of this information by directors and managers, for decision-making respectively.
The scientific novelty and the practical value of the research lie in providing the entity under study with a financial analysis procedure appropriate to its particularities, with a logical and coherent order, using and integrating the various methods and procedures used internationally. With its implementation, managers are provided with a system of accounting tools, which will allow them to increase efficiency in decision-making, an aspect of utmost importance in the management of human, material and financial resources to which the company is called.
For the development of this study it is necessary to carry out various tasks:
- Consultation of updated bibliography and documentation of aspects related to the main financial statements of the entity, as well as an interview with specialists in the branch of economics Study of the characterization of the entity under investigation Selection and integration of financial analysis methods Design of a financial analysis procedure based on the information presented in the financial statements.
To carry out this study, different methods of scientific research were used:
From the empirical level: Observation .
The observation: allowed to know the characteristics of the entity under study, as well as the steps that are carried out for the analysis of the situation of the financial activity, the degree of use of the tools and techniques of Finance and the incidence of the analysis to aid decision making.
From the theoretical level: The analytic-synthetic, the inductive-deductive, heuristic or consultation and the historical-logical.
Analysis and synthesis method: it was used to study the elements that make up financial activity in isolation and then grouped together to assess it comprehensively. Hence, it was very useful for the selection of the data necessary for the calculation of financial ratios.
Induction and deduction method: it was used when analyzing the financial reasons individually, particular conclusions were reached for each of them and later they were analyzed in an integrated way, as well as in the analysis of cash, accounts receivable and payable and inventories to give an overview of the financial situation of the entity under study.
Heuristic method or consultation: it was used to consult with specialists linked to the economic area, being considered very useful for the development of the work, since this consultation represents a valuable source of information and feedback that allows knowing the characteristics of the entity object of study and the advantages of the designed procedure.
Historical-logical method: it was used to monitor the analysis of the financial activity carried out in the entity and the differences when applying the techniques in the study carried out.
Chapter I. Theoretical considerations on the analysis and interpretation of the financial statements; refers to the theoretical foundation, supported by the bibliographic review. Here everything that corresponds to financial analysis is taken into account for decision-making in the entity. Fundamental concepts are raised that are addressed in the work, thus addressing several authors; explicitly stating the importance of characteristics in decision-making as well as the methods and techniques for the study of financial statements.
Chapter II. It presents a brief characterization of the entity in question as the object of study, the procedure used for the economic-financial analysis procedure is designed. The proposal to be developed is presented, including the techniques for the realization of the reasons, analysis of the results and shows the application of the procedure and the results obtained.
THEORETICAL FOUNDATION OF THE ANALYSIS AND INTERPRETATION OF THE FINANCIAL STATEMENTS.
Financial analysis is the study that is made of accounting information, through the use of financial indicators and ratios.
Accounting represents and reflects the economic and financial reality of the company, so it is necessary to interpret and analyze that information in order to fully understand the origin and behavior of the company's resources. Accounting or financial information is of little use to us if we do not interpret it, if we do not understand it, and that is where the need for financial analysis arises.
Each component of a financial statement has a meaning and effect within the accounting and financial structure of the company, an effect that must be identified and, if possible, quantified.
Basic Financial Statements
The objective of these is to provide users with information to predict, compare and evaluate the entity's profit-generating capacity.
On this, SÁNCHEZ, A. (2002) states: “The financial statements represent summaries (past, present and future) of the accounting operations; showing the financial strengths or weaknesses of the business and are used by the different users of Accounting to make different decisions. "
The definition of financial statements as currently set forth in the pronouncements on International Accounting Standards, is repeated here with greater clarity. "The term financial statements covers balance sheets, income statements or profit and loss accounts, other statements, notes and explanatory materials that are identified as an integral part of the financial statements of any commercial, industrial or business enterprise."
The conceptual framework for the preparation, presentation and publication of the financial statements of banks and non-bank financial institutions, as for the rest of the national entities, is included in the body of the Cuban Financial Information Standards.
The most used basic reports are the following:
- The Income Statement or Profit and Loss Statement that groups the nominal accounts and defines the Profit or Profit for a given period. The Statement of Financial Position or Balance Sheet whose purpose is to present the financial situation of a business.
The Income Statement is a complementary document, made up of nominal accounts where the result of operations (profit, loss) of an entity is reported in detail and in an orderly fashion during a given period, taking as a parameter the difference between the total Income in your Expenses.
The Balance Sheet compares the equality of the basic accounting equation showing the balance that must exist between them.
ASSETS = LIABILITIES + CAPITAL
This expression governs the principle of double entry, through which the balances of all real accounts are represented at the time it is made.
Analysis and interpretation of the financial statements.
The analysis of financial statements is the critical process aimed at evaluating the financial position, present and past, and the results of operations of an entity, with the primary objective of establishing the best possible estimates and predictions about future conditions and results.
It is also defined as follows: "Set of techniques used to diagnose the situation and perspective of the entity in order to be able to make appropriate decisions."
Financial economic analysis is an indispensable component of the decision-making process and requires the processing and interpretation of a wide variety of data. It uses certain techniques, when investigating and prosecuting, through accounting information, what have been the causes and effects of the management of the entity to reach its current situation and thus predict, within certain limits, what will be its development in the future to make consequential decisions.
Methods and techniques for financial analysis.
There are various classifications of methods or techniques for conducting financial analysis, according to the author in question. It is necessary to follow an order to separate and know the descriptive and numerical elements that make up the content of the financial statements.
Classification of methods.
The vertical analysis consists of determining the participation in each of the financial statement accounts, with reference to the total assets or total liabilities and equity for the balance sheet, or to the total sales for the income statement, allowing the financial analysis the following objective assessments:
- Panoramic view of the structure of the financial statement, which can be composed with the situation of the economic sector where it operates, or in the absence of information with that of a known company that is the challenge of overcoming It shows the relevance of accounts or group of accounts within of the state. If the analyst, reader or advisor knows the company well, it can show the investment and financing relationships between assets and liabilities that have generated financial decisions. It controls the structure, since it is considered that economic activity should have the same dynamics for all It evaluates the structural changes, which must be due to significant changes in the activity, or changes due to government decisions, such as taxes, rates, as well as what will happen with the social price policy,Salaries and productivity It evaluates the management decisions that have brought about these changes, which can be verified later with the study of the statements of changes They allow to propose new policies of rationalization of costs, expenses and prices, as well as financing. Select the optimal structure, on which there is the greatest profitability and that serves as a means of control, to obtain the maximum performance.for maximum performance.for maximum performance.
It is important to state that the analysis of the financial statements should be carried out on the basis of these updated or restated, using the same techniques and methods applied that were based on the comparison.
Financial analysis is essential through financial reasons, which are the relationship of one figure to another within or between the financial statements of a company, and allow weighing and evaluating the results of the entity's operations.
RODRÍGUEZ, E. (1998) agrees that: "the ratios are relationships that exist in two variables," he also argues, "that the financial ratios have been designed to show the relationships that exist between the accounts of the financial statements."
The reasons, in the first place, must have a useful economic content, by themselves they are of little use, if it is not related to a measure or pattern (previous year, forecast, another company, branch standard, etc.). The fundamental utility is in the trend and seasonality problems.
In the aspect of reasons, the analyst must take great care in comparing those whose structural, evaluative content, etc., is homogeneous and, above all, not draw hasty conclusions with the use of pre-established rules such as the “minimum value that must reach such or more which reason ”.
In horizontal analysis, what is sought is to determine the absolute or relative variation that each item of the financial statements has suffered in one period with respect to another. Determine what was the growth or decrease of an account in a given period. It is the analysis that allows to determine if the behavior of the company in a period was good, regular or bad.
Partial conclusions
It is important to apply the methods and techniques to carry out an adequate analysis and interpretation of the financial statements. he result of calculating financial ratios alone is not an element for analysis; For this to be effective, different comparative parameters must be established.
Because it enables the achievement of adequate decision-making by managers and this enables the entity to obtain better achievements in its future projections, contributing to its proper functioning and therefore to raising efficiency, effectiveness and economy. Of the same.
FINANCIAL ANALYSIS PROCEDURE
Horizontal or Dynamic analysis method.
It is applied to two financial statements of the same company on different dates or corresponding to two similar periods or years. The procedure to be applied is that of increases and decreases, both in absolute values and in percentages, this procedure consists of determining the variation of each of the items that make up a financial statement in order to analyze the movement of each account and its impact for the entity.
It starts from the comparative statement in absolute values and percentages shown in Annex 3, whose base is shown in Annex 1 and Annex 2 of the Statement of Profit or Loss and Balance Sheet respectively at the end of September 2011 compared to the same period of 2013.
The aforementioned Annex 3 shows the absolute and percentage variation of the elements that intervene in the result of the entity up to its level of Profit before Tax, where we can verify that:
Whose growth in absolute and percentage form is: 428.9 MUSD represented by 4%. It is easy to verify that this positive deviation is given by the growth in prices for stays by 10%, which has generated a mass of income equivalent to 1,065.4 MUSD more, than the same stage of the previous year, a positive element that is deteriorated by the decrease in stays by 5% to reduce the growth generated by the increase in prices for stays by a value of: 636.5 MUSD.
Costs and Expenses that intervene in the results:
In the Profit or Loss statement, several levels of profit analysis are offered that help to determine in which expense classification are the elements that may intervene in negative or positive deviations of the results, these levels are:
Gross Profit in Operations or GOP, in this level of analysis those Costs and Expenses related to the operation or management of exploitation of the UEB CENTRO ESTE intervene in a pure way, even when there are some negative deviations in operating expenses, in general there are a positive evolution in the return on sales in relation to the previous year, as a growth of 237.7 MUSD is reflected in the absolute comparison for a 6% growth, its percentage expression of comparison indicates that this level of profit represents 0.82% over the level of sales than in 2011.
Semi-net Profit or Profit before Fixed Charges: Reflects the results of the CENTRO ESTE UEB after deducting from the Gross Profit those additional expenses unrelated to direct action on the resources that are exploited to operate the CENTRO ESTE UEB, in this case include the Expenses of Fees to be paid by the manager of the UEB CENTRO ESTE, as established in the Administration contract, in this case remunerations based on agreements related to obtaining this concept in two ways:% on Sales (Production Fees) and% of profits obtained once the expenses incurred in the concept of Fees on Income or production have been deducted from the gross profit.
At this level of profit we observe that the comparison from one period to another begins to deteriorate due to the increase in Fees expenses by 69% equivalent in absolute values to: 353.4 MUSD, the performance of sales at this level of profit as As a consequence of the referred increase, it deteriorates by 1.96%.
The growth of these expenses is given by the review and agreements reached between Properties and the manager to vary the% of remuneration to be earned by the manager in respect of Incentive Fees or on benefits.
Net Profit or Profit before Taxes: It expresses the last level of expression, in the economic-financial framework of the UEB CENTRO ESTE, and is the result to be obtained once the Profit before Fixed Charges is deducted the expenses corresponding to the amortizations of Fixed Assets, in this case there is a growth of 167.4 MUSD equivalent to 8% compared to 2011, and it causes the return on sales to decrease by 3.06%, this responds to an agreement on variation in the application of rates adjusted to the legislation in force, which also had to be carried out retroactively to comply with the provisions regarding the issue.
The analysis carried out using the horizontal method on the elements that intervene in obtaining the entity's Profits, has shown that it is the expenses not related to the operation that have defined the deterioration of the Cost per Weight of sale in 0.03 USD.
This method of Horizontal analysis has allowed us to also assess the variation in the proportions of the resources that in financial order make up the statement of situation where in the table in Annex 3, “Analysis of short-term liquidity”, it is observed that even when the representativeness of Current Assets decreases in relation to Total Assets, the growth in the level of inventories significantly exceeds its percentage structure in relation to total Current Assets from one period to another to mean 27% more over current assets than the previous year, a reason that is fundamentally determined by the growth of rotating inventories, which in this year mean 20% more than current assets, a matter that is essentially given by the renewal of the inventories of the UEB CENTRO ESTE.
Vertical or static analysis method.
It is used when analyzing a single financial statement corresponding to a specific period, and can be evaluated with this same type of analysis in financial statements framed in a reasonable stage of comparison, it uses:
Integral Percent Procedure (specific weight):
It is also known as common financial percent or reduction to percent. It consists of separating each of the items and determining the proportion that they represent with respect to the total of the items or homogeneous items. It is calculated:
Integral percent =
Simple Reasons Procedure:
It consists of determining the dependency relationships that exist when comparing geometrically the figures of two or more concepts that make up the content of the financial statements.
In this procedure, geometric ratios are applied since the dependency relationships are the most important and not an absolute value that is obtained.
Reason: It is the relationship of magnitude that is established between two figures that are compared with each other, the result of that comparison
In the analysis carried out through this work, the application of the previous concept has been taken into account, appearing in Annex 4, the result obtained in each of the calculated reasons that we will comment below according to the classification studied on the reasons for reference.
Solvency or liquidity reasons:
The liquidity of a company or organization or entity is judged by the ability to pay off short-term obligations that have been acquired as they become due. They refer not only to the total finances of the company, but to its ability to convert certain current assets and liabilities into cash. They are calculated through indices within which are:
Current or general liquidity ratio:
Indicates the volume of monetary units realizable in the short (current assets or CA) for each monetary unit required in the same period (current liabilities or PC).
In the results shown that refer to this calculation, it shows an index of 1.48 to decrease by 0.02 with respect to 2011, it means that the UEB CENTRO ESTE, even when it decreases, retains the ability to absorb with its assets all the short-term obligations with which account in your current liabilities more than once. The higher this index, the greater the capacity of the UEB CENTRO ESTE to meet its short-term obligations.
The most favorable values of this indicator range between 1.5 and 2.
Immediate Solvency, Acid Test or Rapid Test Ratio: This test is similar to the solvency index, but within current assets the inventory of products is not taken into account, since this is the asset with the least liquidity, that is because if they they are going to be converted into cash, they take time, because you have to sell them first and then collect them. Provides a more accurate picture of business liquidity.
The result that the calculation of this index shows in our work tells us how much impact the weight of inventories has on the financial capacity of the entity, that is, when we reduce the analysis to the factors that intervene in the solvency of the UEB CENTRO ESTE to In the most liquid components of finance, a great difference is observed, and when comparing it with the previous year we corroborate what has been said because the decrease in this indicator is 0.41 times. Other evidence of this statement results from analyzing the representativeness of inventories over current assets in this year they represent 83% and in 2011 they represented 56%.
The most favorable value of this ratio should have a 1: 1 ratio.
Cash Ratio: It allows to measure the effective capacity of the company in the short term; only considers the assets held in Caja-Bancos and marketable securities, discarding the influence of the time variable and the uncertainty of the prices of the other current asset accounts. It indicates the company's ability to operate with its most liquid assets, without resorting to its sales flows. We calculate this ratio by dividing the total of cash and bank balances by current liabilities.
That is, we have 16% of liquidity to operate without resorting to sales flows, it is decreased by 7% in relation to 2011, which indicates that we are at a financial disadvantage to meet our obligations from the more concentrated expression of the liquid assets of the entity even when accounts receivable have decreased, which corroborates that the inventory factor continues to be the most incident in the deterioration of this indicator.
This indicator should not be less than 0.12, but considering that the payment cycle currently required is mostly 30 days, we reaffirm the insufficiency shown in the case we analyze.
It is essential in the analysis of liquidity to express the movement of Working Capital or Working Capital, absolutely also so that once the current ratio has been calculated, an idea of the volume in its monetary expression is obtained when comparing it with the same stage in a previous year.
Working capital is a company's investment in short-term assets (cash, marketable securities, accounts receivable, and inventory). It is defined as current assets minus current liabilities.
The result of this calculation in the object of study is: 729.8 MUSD to decrease with respect to the previous year in 108.1 MUSD, which is represented as a percentage of 10%, which is based on the impact that the decrease in Accounts by receivables that have decreased by 79%, while current liabilities decrease by 9%.
Activity Reasons: They measure the degree of effectiveness with which the company uses its resources.
Turnover of receivables: Represents the number of times the average number of customers of the UEB CENTRO ESTE is renewed, that is, the number of times the commercial circle is completed in the period to which the net sales refer. Measures the liquidity of accounts receivable through their turnover.
It means that the business cycle Clients - Credit Billing - Collection Management - Cash Receipts collected has been renewed 14.87 times which implies having a collection cycle of less than 30 days, on the other hand the growth of this index with respect to 2011 in 2.33 times indicates a positive evolution in the settlement of Accounts Receivable. The percentage growth in turnover is 16%, corroborated by the average decrease in accounts receivable by 13%, even though sales have grown by 4% compared to the previous year.
This index is supported in the calculation of the Average Accounts Receivable Cycle, which assesses the credit policy used by the entity for its customers, shows the average number of days that elapses since a sale on credit is made, until cobra. At the end of the period under analysis, it stated that the time elapsed between the formalization of a credit sale by invoice until it is charged is: 24 days, that is, 4 days less than the same stage of 2011. On this indicator it is recommended to keep as low as possible.
On the other hand and as a complement to the analysis related to accounts receivable, the collection management index that means how much we have left to collect from each monetary unit sold on credit expressed a result of: 0.07 USD to decrease by 0.01 with respect to the period previous.
This rules out the possibility that in assessing the impairment of the immediate or cash ratio, accounts receivable are the determining factor.
Rotation of items payable: It is used to calculate the number of times that accounts payable are converted into cash during the year. This ratio indicates how efficiently the company uses its assets.
It means that in the annual period the cycle of Purchase of Goods on Credit - Consumption and settlement of the obligations contracted for the purchases of these consumed goods, has been fulfilled 7.34 times which presupposes that the Payment Cycle is behaving above the 45 days. With respect to the previous year, there is a favorable evolution of this indicator in 1.48 times more rotations, meaning that we take less time to pay for the merchandise consumed.
As in the collection cycle, other related indexes extend the assessment of the result of this indicator, such as: Average Payment Cycle translated into: It allows assessing the payment standards of the company. It consists of the average period of time that elapses since the purchase of supplies and materials, and the payment of cash for them. This index shows in the results of this work that the period of time that elapses between both transactions is 50 days, decreasing by 13 days with respect to the previous year. It is recommended that this payment cycle in the sector behaves over 45 days.
It complements the interpretation of the reasons related to the Payment Management Accounts Payable indicator, which represents how much we have left to pay for each monetary unit represented in the merchandise purchased and consumed. In this case, the calculated ratio tells us that 0.14 of each USD acquired and consumed in the UEB CENTRO ESTE operation during the period is pending payment, decreasing by 0.03 USD compared to 2011.
Inventory turnover : This measures the liquidity or speed with which the inventory turns into cash through its movement during the period. It is obtained by dividing the cost of sale by the amount of inventory. For the calculation to be correct, the average of the initial and final inventory is taken as a basis.
Indicates that the inventory corresponding to the merchandise for sale has been replenished 9.90 times in the year, which means that the merchandise that is purchased whose destination defines the cost of sale remain in storage for 28 days before being consumed, that is, 5 days more than the previous year, taking into account the framework or period of the analysis. This indicator deteriorates with respect to 2011, where to this date the inventory turnover was 12.11 times, a reason that is based on the growth of the average inventory from one period to another by 18% despite having decreased the level of activity or be the tourists days.
On the other hand, the 32-day Cash Cycle, which grows by 16 days with respect to 2011, denotes the period of time that elapses in recovering with sales the expenditures made for the settlement of payments, a question that corroborates the streamlining in the settlement of our obligations with respect to the previous year.
Stability reasons: In the group of stability reasons, it is indicated how the company is operating from the point of view of the investments made in it, that is, if the entity is not being undercapitalized, or if on the contrary you have too many assets. (Annex 5)
Debt ratio: The ratio debt as investment measures should be compared to the amount invested by the partners (theremodes of short and long term). The result, which should preferably be less than one and even less than 0.5, will depend on the company's policies and the maturity period of the different projects.
It means that our creditors are only financing our means or assets by 5%, the theoretical reason expresses that this relationship should point towards 50%, but in the UEB CENTRO ESTE activity it was due to the dynamics of operations and the high values of assets, it is very difficult to arrive at this correlation. With respect to the previous year we maintain this same proportion.
Profitability Reasons: The study of these reasons is of great importance because it reveals the relationship between profit and other items, they express useful information about the behavior of the business. (Annex 5)
Capital profitability ratio: It expresses the profit or profit that is generated on the Capital invested and obtained by the entity in a period of time.
It expresses that for each weight of Assets contributed as Capital by the entity's Shareholders, in this year, they have obtained 0.07 USD or 7%, the theoretical ratio of this index must be 15% per year, which means that the Management's total effectiveness in producing profits does not meet the general expectations of return on investment. In this sense, we deteriorated by 1% compared to 2011.
Profitability of sales: It is the relationship between what is sold and what is being obtained as a profit. Shows the profit generated by each peso of sale in a period of time.
It means that for each monetary unit of sales we have obtained a Net Profit equivalent to 0.17 USD in percentage terms, a yield of 17%. There is a 3% deterioration compared to the previous year. Your ideal theoretical ratio should result in 30%.
Return on assets: It reflects the relationship between the benefits obtained and the investment or application of total resources. Indicates how much is earned for each investment weight of Assets:
In the UEB CENTRO ESTE, during the period under analysis, the net profit has covered the investment or applications in Assets by 6%, decreasing by 1% with respect to 2011, theoretically this ratio should express 8%.
Return on Net Fixed Assets: It reflects the relationship that exists between the benefits obtained and the investment or application of resources in Fixed Assets. Indicates how much is earned for each investment weight of Net Fixed Assets.
By expressing the same percentage of return as in the previous ratio, that is 6%, it means that the most important weight within total assets is Fixed assets, that is, the return on Net income has its maximum expression in Fixed Assets. It decreases in turn by 1% compared to 2011, and its theoretical ratio is manifested as ideal in 18%.
Dupont method
Like any other financial reason, this technique is of great importance for any business when determining the profitability of Net Fixed Assets from the Proforma Statements resulting from a combination of a series of reasons related to the profitability of the Investment and of Assets.
- It allows to determine the total effectiveness of financial management, shows the ability to generate profits from Assets. Shows the relationship between the efficiency of the income statement, the company's sales and the investment in assets. The less the percentage of The higher profit should be the rotation of assets to be more profitable investment.
The results of the application of this method in the object of study (Annex 6) were based on:
- The real of the year 2010 The real of the year 2011 The budget approved for the year 2011.
It can be seen in the summary of the Du Pont formula that in 2011 there is a return on investment of $ 0.036 higher than that of 2010 and when comparing the Real 2011 in relation to the 2011 Budget, the Return on investment was higher than planned at $ 0.033, which indicates that the profit percentage had a positive influence on this indicator, in the same way that asset turnover had a positive influence.
State of Origin and Application of Funds: Finally, an essential objective in the financial analysis is the analysis that shows the balance that exists between the means and the different sources of financing, this is achieved with the preparation of the Balance of Origin and application of Funds which is nothing more than an accounting document that collects the variations experienced, between two moments of time, in the assets that make up the Assets and Liabilities of the Balance Sheet.
The origins of funds are produced as a consequence, either, of increases in the assets of the Liabilities or of decreases in the assets of the Assets.
The applications, on the other hand, occur by increasing the assets of the Assets or by decreasing the amounts of the Liabilities.
- Decreases in Working Capital, either as a consequence of decreases in current assets or increases in current liabilities Decreases in fixed assets or fixed assets Increase in equity Increases in long-term liabilities Positive result for the year
Background applications can materialize in:
- Increases in working capital, either as a consequence of the increase in current assets or decreases in current liabilities Increase in fixed assets or fixed assets Decrease in equity Decrease in long-term liabilities Negative results for the year
In the results presented in Annexes 7 and 8, it is observed that with respect to the beginning of the period and based on the movement of the Working Capital in the UEB CENTRO ESTE shows a growth of the Working Capital, essentially given by the growth of the Inventories line in a Amount amounting to: 336.7 MUSD and a significant decrease in short-term obligations due to a decrease in the Available concept.
On the other hand, and from the perspective of the Analysis of Origin and Application of financial resources, it is stated that it has been the profit obtained in the period that has contributed the most to the sources or funds of origin obtained, which constitutes 48% of these, being its application or fundamental destination the realization of Contributions on this Profit whose structural weight represents 75% of the applied funds.
CONCLUSIONS
Once the techniques that provide the necessary elements to assess the financial situation of the object of study have been applied, we can conclude that the information from the income statements and balances taken as a sample in each case offers arguments to conclude that:
In its operation management, it sets guidelines for positive evolution or growth with respect to the previous year, based fundamentally on the fulfillment of the essential objective of the budget approved for 2013: Achieve increases in efficiency (Higher% of profits over sales) based on the increase in projects for the sugar industry.
The position of Net Income with respect to the previous year shows an involution in terms of absolute results and% of profits on sales, a question that responds to expense allocations higher than expected based on decisions of higher instances that distort profits to be obtained according to budgets and influence the deterioration of this indicator compared to 2011.
In the financial area, the ratios show a favorable position in the current period, since in the observance of its results it is verified that there are slight deteriorations referred to the liquidity, solvency and treasury indices, but they have its effect in a better position regarding the fulfillment of our payment obligations, on account of a more efficient collection management.
On the other hand, it is observed that the growth of inventories marks a notable difference between solvency and liquidity and is negatively marked with respect to 2011 in this sense, in essence to those inventories that are classified as rotating or circulating inventories.
Regarding the reasons that measure the profitability of the investment, it can be concluded that even when the Total Assets reflects a decrease, the deterioration of the Net Income or before Tax compared to the previous year, makes the profitability of the Total and Fixed Assets decrease from period to period.
It is demonstrated in the Autonomy and indebtedness reasons that the support of our Assets is based on Own Means or Equity by 95%, and that our creditors continue to finance the operation by 5%.
The historical method applied (Trend Analysis) shows that the expectations that we propose in the projection for the end of 2013 are ambitious, showing that the commercial actions carried out to achieve a higher level of occupancy and income than in Previous years have been significant and are in congruence with the demands of the sector regarding the indications for the preparation of budgets.
In the results of applying the Factor Method with the Chain Substitution technique, we verify that the variation in liquidity is directly related to the growth of inventories and to the decrease in available cash in the case of the cash ratio.
In the application of the projected method of results evaluated through the breakeven point, it is verified that in order to achieve the planned objectives, you need to reconsider your income levels by increasing your levels of stays and your income or, failing that, reducing your costs and expenses variables.
The profitability of Fixed Assets, analyzed through the Dupont method, shows us the favorable contribution that the levels of net profit reached in 2011 made it possible to improve the profitability of Assets, by achieving an increase in turnover of active.
Finally, the analysis of the variation of capital and the calculation produced by the Balance of Origin and application of funds, show us that the capital growth that is expressed, has its essential foundation in the growth of assets (Related to the issue of inventories), and in the reduction of its obligations in a greater proportion than the reduction of the Available or effective concept, and that the objective of contributing with the profit to the fulfillment of the benefit contributions to the higher instances is fulfilled, by constituting 82% of fund applications.
RECOMMENDATIONS
Derived from the conclusions of the work and fulfilling its fundamental objective of providing elements that improve the financial and economic results for the benefit of the entity, it is essential to make the following recommendations:
- It is extremely important that, in general, the bodies in charge of measuring the entity's efficiency take into account the three moments in which it is expressed.
- GOP or Gross Profit to more clearly measure the management of operating resources and can be comparable with the results of any company (whether owned or of other types of Administration) Profit after Fees or before Fixed Charges, to know to what extent managing those of the company is in Administration may or may not be beneficial for the country.
BIBLIOGRAPHY
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