The Companies Financial Condition Analysis
ass
: Fattoyev Elbek Alisherovich
elbekjonfea@gmail.com
Tashkent University of Applied Sciences Department of General Economics
https://doi.org/10.5281/zenodo.10467811
Abstract
In our article, information is provided about the methods of analyzing the financial condition of
companies and its importance. Information is also given about the possible outcomes of this analysis for
financial management and administration. The implementation of financial analysis based on accounting reports,
the utilization of this analysis for various purposes, and the evaluation of information are discussed.
Key words:
high-level condition, internal analysis, financial managers, financial analysis, financial management,
asset management, budget report, market economy, external analysis, external economic environment,
classification, debtor, report, growth, currency movement, analysis, accounting balance.
1 INTRODUCTION
The financial condition of enterprises is an
economic indicator, and its importance is very
significant, especially in the conditions of market
economy, knowing the theoretical foundations of
enterprises' independent activities at a time when
their activities are growing gains special importance.
The financial situation of companies is
changing very quickly. This, in its turn, increases the
importance of the companies’ financial situation
analysis.
The financial condition of enterprises can
be assessed by expressing the method of evaluating
in traditional terms, and this also enables forecasting
the financial condition of enterprises according to
the accounting report. This financial analysis is
carried out.
Financial analysis is usually divided into
two types - internal and external. Internal analysis is
carried out by financial managers of companies.
External analysis, on the other hand, is conducted by
individuals who come from outside, such as auditors.
The companies’ financial situation analysis
serves several purposes, including:[1]
Determination of the financial situation;
Determination of the changes in the
financial condition at the certain time;
Identification of the main factors causing
changes in the economic situation;
Analysis of the economic situation using
economic and mathematical methods and modern
computer programs;
The purpose of financial analysis, along
with cooperation, should not only be limited to
determining the financial condition of companies,
but also to constantly improve their financial
situation as much as possible.
Financial analysis helps to identify
weaknesses and provide opportunities to eliminate
those weaknesses. Therefore, financial analysis is a
management tool in modern conditions.
Financial analysis is considered to play the
main role in financial management. Financial
management is the art of managing the financial
conditions of companies. This management art is
used in the effective utilization of financial
strategies. It plays its role in internal and external
diagnosis.
The identification of internal factors is used
to improve the management of assets, i.e. it is used
in the use of valuable papers.
- Study the price dynamics of goods.
-tax office (tax collection agency) and bank
credit deposits, securities issuance:
- Activities of competitors in the financial
and commodity markets and the like:
Financial analysis conducted provides
alternative solutions and the possibility of
monitoring them.
Internal users (employees and managers)
assess their financial performance and identify its
growth trends based on the accounting report. The
accounting report is the main database that
determines the company's investment and financial
status.
It is possible to make the following decisions with
the help of financial analysis:
1. Short-term financial management of companies
(filling out balance sheets).
2. Long-term financial
management (capital investment, profitable
investment securities, and issuance of valuable
papers).
Paying dividends to shareholders.
3. Mobilizing economic growth opportunities
(increasing sales and profit growth).
4. Financial analysis shows the correlation between
the implementation of accounting information and
the financial solution accepted by company leaders.
1.1. Heading. The source of information for
financial analysis is based on accounting reports.
Providing users with complete and accurate
information about the financial condition of
companies is the fundamental basis of international
standards on the issue of financial reporting, and it
establishes the concept of modern financial
reporting development.
Therefore, users can evaluate the company's
capabilities, shape their profits, and accept the
established management solution by constantly
analyzing information at any given time.
Now let's consider the interdependence of financial
and management analysis.
Financial analysis is a component of companies'
economic activity and is closely related to the
following sections:
1. Financial analysis;
2. Production management analysis;
The classification of financial analysis is closely
related to accounting
(financial) and management accounting in practice.
This classification is conditional, and it is possible
to interpret internal and external analysis.
1.2.
Relationship
between
financial
and
management analyses.
The degree and content of financial analysis are
largely dependent on the completeness and accuracy
of the information obtained, as well as various other
factors.
Annual reports allow for a thorough analysis of a
company's financial condition beyond its financial
performance.
Until January 1, 1997, the following reports
formed the basis for financial analysis:
1. Report No. 1 – with form (consistency of
companies).
2. Report No. 2 – with form (financial results
report).
3. Report No. 1-f – with form (report on main
financial indicators of companies).
4. Report No. 2-f – with form (report on
composition of company expenses).
5. Report No. 5 – with form (addition to the
consistency of companies).
In addition, the use of the following indicators is
relevant for analyzing the financial condition of a
company:
- investment activity
- movement of debt amounts
- debtor-creditor debts
- composition of non-current assets at the end of
the year
- status and movement of main investments
- financial ratios
- currency movements
The above information allows for a comprehensive
analysis of the financial condition of bank
companies.
Based on the Regulation on Approval of Forms
and Volume of Quarterly and Annual Financial
Reports of Companies adopted by the Ministry of
Finance of the Republic of Uzbekistan on January
15, 1997, the following financial reports have been
approved:
1. Annual financial report for the analysis of the
financial condition of companies.
No. 1 - Form "Balance Sheet"
No. 2 - Form "Financial Statement"
No. 2 - A - Form "Information on Debts and
Credits"
No. 3 - Form "Report on Movement of
Main Amounts"
No. 4 - Form "Report on Cash Flow"
2. Semi-annual financial report for the
analysis of the financial condition of companies.
No. 1 - Form "Balance Sheet"
No. 2 - Form "Financial Statement"
No. 2 - A - Form "Information on Debts and
Credits"
No. 3 - Form "Report on Cash Flow"
3. Quarterly financial report for the analysis of the
financial condition of companies.
No. 1 - Form "Balance Sheet"
No. 2 - Form "Financial Statement"
No. 2 - A - Form "Information on Debts and
Credits"
In the newly approved form of the financial report,
it has not only changed, but its content has been
significantly improved, meaning that the
information has been structured. Now the balance
sheet consists of two sections, not three.
Analysis of
economic
activity
Financial analysis
based on the
bugalteria report
Domestic financial
stable based on the
buggalteria report
Analysis of the
internal production of
the farm on the basis
of management
Financial
analysis
Management
analysis
Analysis of
economic
activity
Financial analysis
Accounting report
Internal financial
analysis based on
accounting report
Management
analysis
Analysis of the
internal production
of the farm on the
basis of management
The information on debts and credits includes both
national and foreign information.
Now let's look at the methods of financial analysis.
The purpose of financial analysis is to determine
the financial condition of companies using specific
quantitative indicators. These indicators include:
- Changes in the structure of assets and liabilities.
- Dynamics of changes in debt and credit positions.
The level of profitability of assets (
liabilities).
In practice, the following methods of financial
analysis can be indicated:
- Horizontal analysis
- Vertical analysis
- Trend analysis
- Comparative analysis
- Ratio analysis
1) Horizontal analysis based on timely analysis
compares the indicators of financial reporting with
previous period indicators. The main methods of
horizontal analysis are as follows:
- Simple comparison of reports and analysis of their
sharp differences;
- Analysis of financial indicators with their trend.
In this case, the main attention is paid to the fact
that the change of one indicator does not
correspond to the change of the second indicator.
2) Vertical analysis is used to compare certain
sections of the balance sheet and is used to compare
the final indicator with the results in the next
period.
3) Trend analysis is mainly used to determine the
relative decline from the base period for the
analysis of financial indicators (for quarterly,
annual periods).
4) Comparative analysis means comparing certain
indicators of enterprises within the industry, as well
as comparing industry indicators.
5) Ratio analysis examines the impact of certain
factors (ratios) on the performance indicator. This
method uses correlation analysis.
As an example of ratio analysis, we can mention
DuPont's three-factor model:
'V.V. Bocharov. Financial Analysis
ck
SF
SF
AF
A
SF
X
X
CK
AF
A
CK
=
=
SF - net profit here
is the net profitability of equity. (in percentage or
in one unit)
CK - capital at the end of the reporting period.
AF - profit obtained from the allocation of the
product
A - assets at the end of the reporting period
According to the analysis of the accounting report,
if the net profit [3]
(derived from equity) is lower, then the factor that
caused the decrease is determined. These factors are
as follows:
1. Decrease in net profit;
2. Inefficient management of assets;
3. Changes in the composition of invested capital;
Example. According to the first stage of the report,
net profit is 9 million soms, income from allocation
is 60 million soms, assets are 120 million soms,
equity is 30 million soms. According to the second
stage of the report, net profit is 9.9 million soms,
income from allocation is 63.6 million soms, assets
are 126 million soms, equity is 30 million soms.
9
60
120
100 30 30%
60
120
30
CKI
SF
X
X
X
=
= =
9.9
63.6
126.0
100 33%
63.6
126.0
30.0
CKII
SF
X
X
X
=
=
1)
Here, as a result in the increase of net profit,
the increase in the return on equity was equal
to 1.14% (31.14-30.0).
9.9
60
120
100 31.14%
63.6
120
30
X
X
X
=
2)
As a result of accelerating asset turnover, the
increase in the return on equity was equal to
0.3% (30.3 - 30.0).
9
63.6
120
100 30.3%
120
126.0
30
X
X
X
=
3)
Taking into account the change in the
capital structure, the increase in the return
on equity was equal to 1.5% (31.5 - 30.0).
9
60
126
100 31.5%
120
120
30
X
X
X
=
4) If we add these three factors together:
1.14 + 0.3 + 1.5 = 2.94%
Or approximately 3%.
The financial coefficient method is used to
determine
the
interdependence
of
financial
indicators.
In the analysis, the following factors needed
to be taken into account: the efficiency of the applied
accounting methods, the accuracy of the financial
reporting, various calculation methods, and the
compatibility of the used coefficients with statistical
data.
These three coefficients are widely used in
the practice of developed Western corporations
(USA, Canada, Great Britain):
ROA, ROE, ROC
Income from total assets.
(
)
net income
1-tax rate percentage
total assets
X 100
ROA
+
=
Investment capital, or more specifically
long-term capital, represents a long-term contractual
agreement. Therefore, it represents long-term
financial resources:
Income from investment capital
(
)
(
)
net profit
tax rate long in percentage
term contract
faithful capital
1
C
RO
+
−
=
+
It is known that the identification system, which is
necessary for assessing the economic difficulties
and ensuring their survival, is an indicator system
that is used to identify the ratio of continuous
changes or concepts, one of which is the corporate
balance sheet.
The balance sheet is a continuous changing event or
concept indicator system that represents the ratio of
the national economy's development in accordance
with its goals and ensures its efficiency. National
economic sectors, such as monetary, intersectoral
payments, value, labor resources, fuel, energy,
profit balances, population income and expenditure
balances, and accounting balances, have such
balances.
The balance sheet method is when everything that
needs to be taken into
account is taken into account on both sides, that is,
it shows what and how much money has been spent
on the item being accounted for. The balance sheet
is always presented as a table consisting of two
parts. The active (left side) part of the balance sheet
includes assets, while the passive (right side) part
indicates their acquisition or formation sources. The
ratio between assets and liabilities must always be
equal.
It is well known that the balance sheet plays
a key role in assessing the financial situation of
companies. Taking this into account, let's take a
detailed look at the composition of the balance sheet.
From the perspective of ownership form, the
following report forms were recommended by Order
No. 5 of the Ministry of Finance of the Republic of
Uzbekistan dated January 15, 1997 for quarterly
reporting to entities engaged in economic
activities:[2]
Composition of the Accounting Balance Sheet.
The symbols used in economic analysis and their
meanings
UM.yb - Own funds at the beginning of the year
UM.yo - Own funds at the end of the year
B - Total assets (liabilities) or balance sum
AV - Main assets
MX - Debts for labor remuneration
UMA - Long-term assets
Am - Current liabilities
UMM - Long-term liabilities
ChJM.yb - Borrowed funds at the beginning of the
year
ChJM.yo - Borrowed funds at the end of the
year
ChJM - Borrowed funds
UMCHJM - Long-term borrowed funds
KMCHJM - Short-term borrowed funds
D - Debtors
KR - Creditors
UZAM - Share of own funds in current liabilities
(balances of own funds in current liabilities)
ChJM.am - Balances of borrowed funds in current
liabilities
PM - Cash amounts
UMA.yb - Long-term assets at the beginning of the
year
UMA.yo - Long-term assets at the end of the year -
Total own funds
OA - Current assets
MAM - Monetary current liabilities
ICHZ - Production costs
TICH - Unfinished production
TM - Finished products
OST - Goods for sale
VM - Currency amounts
KPM - Cash in hand[6]
1- Title
"Balance
Sheet"
Active
long-term
assets
circulatin
g assets
passive
individua
l funds
liabilities
1-P shape. Labor report
1. Number of workers
and wages
2. Amount of urine,
under contract
working workers. the
worker
movement of forces,
vacancy
amount of seats, notolah
wealth
1- Title "Balance Sheet"
Assets
1. Long-term assets
1.1. Fixed assets (main
equipment)
1.2. Current assets
1.3. Capital investments
1.4 Long-term
investments,
subsidiaries,
and joint ventures
2. Current assets
2.1. Monetary assets
2.2 Cash amounts
2.3 Marketable
securities
2.4 Accounts receivable
All assets
Passives
1. Sources of own funds
1.2. Charter fund
1.3. Additional capital
1.4. Undistributed profit
2. Liabilities
2.2. Long-term liabilities
2.3. Short-term liabilities
2.3.1. Including short-term
loans
2.4. Creditors
Including:
2.4.1. Debts for labor
remuneration
2.4.2. Debts to the budget
All passives
The
interrelation
of
selected
indicators
for
analyzing
the
company's balance.
It is possible to identify many indicators necessary
for analyzing and assessing the financial balance of
the accounting through this interdependence.
For example, the sources of revolving funds:
(Mam+D+Pm+) = [(Um+ChJUM) - (AV+NA)] +
(ChJKM+KP)
In this case: the value of the revolving funds (AM) is
the value of the revolving funds;
[(UM+ChJUM) - (AV+NA)] is the accumulated
amount of revolving funds from their own funds
(Umap)
(ChJKM+KR) is the accumulated amount of
revolving funds from external sources (ChJAM).
Based on these interdependencies, it is possible to
analyze the financial balance in a general way.
Therefore, in this section, we have examined the
importance of analyzing the financial situation of
companies and its methods in detail.
All the methods mentioned above have their own
advantages and disadvantages. We will discuss these
further in the future.[7]
ACKNOWLEDGMENTS
The author thanks Kayumov E. and
Ataniyazova M., professors and teachers of Tashkent
University of Applied Sciences, for their scientific
and practical help in writing this article.
List of Used Literature
1. Abdukarimov I.T. Methods of Reading
and Analyzing Financial Reports. "Economics and
Law World" Publishing House, 1998.
2. Bakanov M.I., Sheremet A.D. Theory of
Economic Analysis. - Moscow: Finance and
Statistics, 1995.
3. Beganov V.S., Shaulov D.I., Kan U.T.
Features of Accounting in Joint Stock Companies. -
Tashkent: Publishing House "World of Economics
and Law", 1998.
4. Volojin I.O., Ergashboyev V.V.
Financial Analysis. - Tashkent: "Economics and
Law World" Publishing House, 1998.
5. Kovalev V.V. Financial Analysis. -
Moscow: Finance and Statistics, 1996.
6. Pardayev M.K. Methodology of
Financial Analysis. - Samarkand: SamKI, 1997.
7. Pardayev M.K. Traditional Methods
Used in Economic Analysis. - Samarkand: SamKI,
1997.
8. Pardayev M.K. Profitability and Profit
Analysis in a Market Economy. - Samarkand:
SamKI, 1996.
9. Petrov V.V., Kovalsv V.V. How to Read
a Balance Sheet. - Moscow: Finance and Statistics,
1993.
10.
Sheremet
A.D.,
Sayfulin
R.S.
Methodology of Financial Analysis. - Moscow:
INFRA-M, 1996.
11. Financial Analysis of Firm's Activities.
- Moscow: "Krokus - International", 1993.
Basic tools (AV
)
Intangible assets
(NA)
Long-term laying
Material working
capital (MAM)
Debtors (D)
Cash and valuable
papers (PM)
Self-funding (UM)
Long-term
commitments
(CHJUM)involving
outsiders
Short-term
commitments
(CJSC)
Creditors (KP)
