Corporate Financial Ratio Analysis Essay

Corporate Financial Ratio Analysis Paper

Analysis in terms of corporate financial ratios is an important one in finance. Here is the company financial ratio analysis paper that I would like to share with you.

Company Financial Ratio Analysis Paper 1

Abstract:

The financial analysis index system can help enterprise management to make the right investment decision, develop a reasonable fund-raising program and capital operation planning, and provide the basis for the enterprise to effectively control the cost and formulate a reasonable marketing strategy. This paper takes the current situation of China's enterprise financial analysis index system as the starting point, analyzes its deficiencies, and gives corresponding measures to solve the problem according to the actual situation.

Keywords :

Financial analysis; index system

1 China's financial analysis of the current status of the index system of enterprises

Although there were many major breakthroughs in financial analysis technology in the early twentieth century, but the financial analysis of the financial analysis of an independent discipline began in the 1950s.

Although there were many major breakthroughs in financial analysis technology in the early 20th century, financial analysis became an independent discipline in the 1950s, and modern financial analysis provides the basis for effective cost control and the development of reasonable marketing strategies.

1.1 Connotation of financial analysis The famous economist Karl Marx has been involved in financial analysis when interpreting the principles of economic analysis, and at the same time laid its theoretical foundation. Obviously, when we study and analyze the changes in financial indicators, we must consider the positive or negative impact that financial analysis may have on them. Financial analysis is also an essential and far-reaching part of the broader theory of financial management, providing comprehensive information for the supervision and management of the organization, and integrating it into the entire financial management chain of the organization.

1.2 The content of the financial analysis index system silt solvency indicators, as the name suggests, solvency is the ability of the enterprise to repay debts, whether the enterprise can use its funds to repay the debt due, is the key to the survival and development of the enterprise. In the operating capacity indicators, operating capacity refers to the ability of the enterprise operation, the enterprise has its own internal human and material resources through the effective configuration to influence the ability to achieve organizational goals. Profitability refers to the ability of an enterprise to make profits, and the ability of an enterprise to increase the value of its assets through business and commercial activities within the scope of its capacity.

1.3 Setting principles and requirements of the financial analysis index system silt principles of financial analysis initially originated in the refinement and generalization of its practical experience, it is the guiding norms of financial analysis. The main body of the analysis in order to achieve the purpose of financial analysis, to ensure the quality of analysis, should follow the following principles: a clear principle of purpose; b the principle of seeking truth from facts; c the principle of cost-effectiveness; d the principle of qualitative analysis and quantitative analysis; e the principle of comprehensive analysis; f the principle of comprehensibility. In the financial analysis of the overall goal is to analyze and evaluate the financial capacity of the enterprise, in order to financial analysis of the overall goal of the realization of the quality of financial information must be ensured, the financial analysis should meet the following requirements: a distinction between different analysis of the main body of the purpose of the requirements. b collection and collation of information that meets the requirements of the financial analysis. c flexible and varied forms of analysis.

2 Problems of China's enterprise financial analysis index system

2.1 The distortion of financial statement data information, the results of the financial analysis of the user caused by the misleading enterprise financial analysis of the data from the enterprise's financial statements, financial statements, whether the data is true and complete, the accuracy of the enterprise financial analysis indicators have a direct impact, due to the lack of integrity and the lack of information. Due to the lack of integrity and profit-driven, the phenomenon of distortion of information is highlighted in enterprises, especially in financial statistics. As a result, the results derived from the analysis of financial statements are often not comprehensive.

2.2 Analysis of intangible assets of the enterprise missing indicators in the financial analysis of the enterprise, the main consideration of its inventory and fixed assets such as physical assets, but ignored the more critical, essential intangible assets. Intangible assets are the source of sustainable development and growth in the economy and society, is the vitality of the enterprise. In our country, the indicators of financial analysis does not reflect the value of intangible assets in the part, which is a considerable defect, making the results of financial analysis in the actual application of the process of poor results.

2.3 Enterprise production and operation can not be fully reflected in the economic and social drastic changes in the competition in the intensification of enterprises in such an external environment to withstand the degree of pressure and risk deepening. The current enterprise financial analysis index system is still stuck in the past level, with the current market environment and enterprise development situation is difficult to coordinate, has great limitations, can not reflect the full range of business operations. Improvements in the level of science and technology, strategic transformation of industries, internal management strategies, culture and other information, have not been comprehensively and accurately recorded in the enterprise's current financial statements.

2.4 Failure to measure the sustainability of enterprise development In measuring the long-term development potential of an enterprise, the first financial indicator system only focuses on profits. Obviously, this approach ignores the obligations and responsibilities that enterprises should assume as social legal persons. In addition to considering their own economic interests, enterprises should also pay attention to the harmonization and sustainability of their production and operation activities with the harmony of the whole society and the green nature. If enterprises ignore the investigation of sustainable development when conducting financial analysis, it is easy to make enterprises blindly pursue the maximization of economic benefits, resulting in environmental pollution, waste of resources and other adverse consequences.

3 Suggestions for Improving China's Current Financial Analysis Indicator System

3.1 Introducing Multi-Faceted Information Acquisition Channels In addition to acquiring information from the financial reports provided by the enterprise externally and the cost and expense statements used internally, the analyzing body should also collect other information from a variety of channels. The audit report, which is the main body of financial analysis to determine the true extent of the company's accounting information is an important basis. Yu policy information, comprehensively revealing and evaluating the impact of changes in economic policies and adjustments in the legal system on the financial position, operating results and cash flow of enterprises. The market information, focusing on changes in the supply and demand for capital in the capital market, changes in interest rates, as well as the impact on corporate investment and financing, in order to find out the causes of the changes in the capital market environment and the trend of the changes in the financial risk of the enterprise as early as possible.

3.2 Introducing cash flow-based financial analysis indexesCurrently, the core indexes of China's current financial analysis index system are accounting profit and investment return, while the long-term stable development and growth of the enterprise depends on the turnover rate of the enterprise's cash assets and the degree of abundance. Although the accrual system is widely used, but also has its fatal drawback, that is, there may be the possibility of artificial false data, so in order to make the results of financial analysis more accurate, the introduction of cash flow as a key indicator is very feasible.

3.3 The introduction of non-financial analysis indicators Throughout the world experts and scholars of the index theory and its practical experience, we found that, relative to the financial information, non-financial information on the development of the enterprise's potential to pay more attention to, usually related to the impact of the enterprise's long-term development of the various factors that affect the interests of the enterprise, that is to say, these factors will have a direct impact on the enterprise's strategy development and implementation of the predictive role. In order to make the results of our financial analysis more able to adapt to the development of enterprises, the relevant managers should increase the non-financial analysis indicators.

3.4 Introducing sustainable development analysis indexes The addition of sustainable development indexes can promote the development of enterprises in the direction of environmental protection and green development, enhance the vitality of the enterprise, enable enterprises to seek a balance between social benefits and economic interests, and enhance the sense of social responsibility of enterprises. The evaluation of the enterprise's sustainable development capability includes:Silt resource utilization. Whether the enterprise can effectively utilize the production capacity. In the development of environmental protection. Take green environmental protection as the basic principle of development, and repair the polluted environment. The construction of public welfare facilities. Construction. In line with the basic concept of sustainable development, enterprises should do their part in public welfare activities, investing in hope elementary school, mountainous areas public welfare and so on.

Company Financial Ratio Analysis Essay 2

Financial statement analysis has a vital role to play in understanding the financial condition, operating performance and cash flow of an enterprise, evaluating the enterprise's solvency, profitability and operating ability, and helping to make economic decisions, but due to the influence of various factors, financial statement analysis and its analytical methods. There are certain limitations. Correctly understand the existence of limitations of financial statement analysis, reduce the impact of limitations, in decision-making to avoid the shortcomings. Is a realistic problem that can not be ignored.

First, the financial statement analysis overview

The analysis of corporate financial statements refers to the financial statements and other information as the basis and starting point. The use of specialized methods, systematic analysis and evaluation of past and present business results, financial position and its changes, the purpose is to understand the past business performance of the enterprise, measure the current financial position of the enterprise and predict the future development trend of the enterprise, to help improve decision-making business interest groups. The most basic function of financial analysis is to process, organize, compare, and analyze a large amount of financial statement data and convert it into information useful for specific decision-making, focusing on the soundness of the enterprise's financial position, whether the results of the operation of the enterprise is good or not to explain and evaluate, and to reduce decision-making uncertainty.

Second, the limitations of the financial statements themselves

1. Financial statements reflect the incompleteness of information resources.

Financial statements do not disclose all the information of the company. Included in the financial statements of the enterprise is only available, can be measured in monetary terms of economic sources. In reality, the enterprise has many economic resources, either because of objective conditions, or because of accounting practice constraints, not reflected in the statement. For example, a large number of assets outside the accounts of certain enterprises can not be reflected in the statement. As a result, the statement reflects only part of the economic resources of the enterprise.

2. Financial statements are not adaptable to the value of future decisions.

Since the accounting statements are prepared on the historical cost principle, many of the data do not represent their current cost or realized value. Inflationary period, some data will be affected by price changes, due to the assumption that the value of the currency remains unchanged, will be different from the simple addition of monetary data at different points in time, so that it can not truly reflect the financial position of the enterprise and the results of the business, and sometimes difficult to statement users of the economic decision-making of a substantial reference value.

3. Financial statements lack of data reflecting long-term information.

As the financial statements are reported in annual installments, only short-term information is reported, and information reflecting long-term potential cannot be provided.

4. Financial statement data are affected by accounting estimates.

Some of the data in the accounting statements are not very accurate, and some of the items are estimated and measured by the accountants based on their experience and the actual situation. For example, the percentage of provision for bad debts, the net salvage value of fixed assets and so on.

5. Financial statement data are affected by management's choice of accounting policies.

A variety of choices of accounting policies and accounting treatments, so that different enterprises of the same kind of statement data lack of comparability. According to the "Enterprise Accounting Standards", the enterprise inventory issue valuation method, fixed assets depreciation method, etc., can have different choices. Even if the actual operation of the two enterprises is exactly the same, the conclusion of the financial analysis of the two enterprises may be different.

Third, the impact of objective factors on the analysis of financial statements

1. Reliability of financial statements on the analysis of financial statements.

In many cases, companies for various purposes, need to show the outside world a good financial position and operating results. Once the actual business situation is difficult to achieve the goal, enterprises will take the initiative to choose the accounting methods that are conducive to improving profits, or take other means to whitewash the accounting statements. For example, some enterprises in order to increase the level of profits, often using overestimation of the end of the period in the product cost, underestimation of the cost of finished goods in storage method. The result of artificial manipulation, so that the information users get the statement information and the actual situation of the enterprise is far from misleading information users, but also make the financial statement analysis is meaningless.

2. The impact of the level of business quality of financial statement analysts on the analysis of financial statements.

The analysis and evaluation of corporate financial statements is usually done by the statement analyst. However, different financial analysts on the financial statements of the degree of awareness, interpretation of financial statements and the ability to judge, as well as mastery of financial analysis of the depth and breadth of the theory and methodology of the various aspects of the differences, and often understand the financial analysis of the calculation of the indicators of the results are different. If analysts do not have a comprehensive understanding of the process of calculating the indicators and the relationship between the indicators, just look at the calculation results, it is difficult to fully grasp the economic meaning of the indicators.

Fourth, the limitations of the financial statement analysis method

1.

The calculation of ratio indicators are generally based on historical costs, historical data based on financial statements, which makes the ratio indicators provide information and decision-making between the relevance of a big discount. Weakened its ability to provide effective services for corporate decision-making. Moreover, the ratio analysis is for individual indicators, and the degree of synthesis is low. In some cases, it is not possible to draw satisfactory conclusions.

2. Limitations of trend analysis.

Trend analysis refers to the comparison of the indicators of the enterprise in different periods, to provide analysts with information on the trend of changes in the financial situation of the enterprise, to provide a basis for financial forecasting and decision-making. But the trend analysis method based on information M etallureical FinanciaZ Accountin data, mainly financial statement data, has certain limitations; in addition, due to inflation or the impact of various contingent factors and changes in accounting conversion methods. So that the financial statements of different periods may not be comparable.

3. Limitations of comparative analysis.

Comparative analysis refers to the comparative analysis of economic indicators. The method of determining the differences and trends between indicators. However, due to the differences in price levels in different regions, the business relationships of enterprises in the region are not the same, which will inevitably lead to differences in the level of indicators of different enterprises, thus making it a lack of comparability.

V. Limitations of commonly used indicators for financial statement analysis

1.

Current ratio is the ratio of current assets divided by current liabilities, the higher the value of this ratio, indicating that current assets exceed current liabilities to a greater extent, that is, the higher the degree of security of the enterprise's short-term liabilities. But this validity is very limited. First. A significant portion of current assets are not solvent, such as inventories with weak liquidity. Secondly, there are some items in current assets are not realizable, such as prepaid accounts, prepaid expenses, although from the nature of its regarded as a kind of current assets, but in fact it does not have the ability to realize the payment. Furthermore, the limitations of the structure of the financial ratio indicator itself determine the limitations of its effectiveness. For example, a very high current ratio itself means that the enterprise's utilization of assets is low, idle assets, low earnings, and slack management; it also indicates that the enterprise's management concept is conservative. It does not fully utilize the enterprise's current short-term financing capabilities.

2. Quick ratio.

Quick ratio is the ratio of quick assets divided by current liabilities, which is an auxiliary indicator of the current ratio. An important factor affecting the credibility of the quick ratio is the liquidity of accounts receivable. When quick assets contain a large number of non-performing accounts receivable. Enterprises are bound to be unable to accurately judge their short-term liabilities repayment ability, many companies have seized this weakness in the statement of the whitewash to mislead the information users.

3. Earnings per share.

Earnings per share = net profit for the year / total number of ordinary shares at the end of the year, which indicates that the ordinary shares in the current year's profit, is an important ratio indicator to measure the profitability of the company. In the calculation of this ratio, the numerator is the net profit for the year, the denominator is the total number of common shares at the end of the year, one is a period indicator, one is a point in time indicator, then the numerator, the denominator of the calculation of the caliber is not exactly the same. At the same time, in the calculation of earnings per share, the number of common shares is a "share" concept, different companies each share in the economy is not equal, they contain different net assets and market value. That is, the amount of inputs exchanged for earnings per share is not the same, limiting the horizontal comparison of earnings per share between different companies.

4. Net assets per share.

Net assets per share = net assets at the end of the period / the number of common shares at the end of the period, indicating the shareholders' equity or book equity represented by each share of common stock issued and outstanding. This metric can be used only to a limited extent in investment analysis because it is measured at historical cost and does not reflect either the realizable value of the net assets or the ability of the net assets to produce output.

5. Return on net assets.

Return on net assets is a kind of return on investment, which is supposed to be a ratio of the net income achieved by the enterprise in a certain period of time to the net assets used by the enterprise for operation in that period. However, the enterprise in a certain period of time for the operation of the net assets are constantly changing, in order to improve the accuracy of the calculation results, from the point of view of simplifying the calculation, the denominator with the average of the beginning and end of the period of net assets, with the numerator of the net profit for the current period compared to seem more reasonable. On the other hand, the "ending net assets" project has been excluded from the amount of cash dividends paid to shareholders, resulting in the adoption of different dividend policy of the company, its "return on net assets" of the calculation of the caliber of the difference.

6. Cash flow ratio indicators.

The real thing that can be used to repay debt is cash flow, and the comparison of cash flow and debt can better reflect the ability of the enterprise to repay debt. But the ratio is too high, probably because the enterprise has too much cash. Failure to well in the operation of the cause of the use. What is more important to note is this. The measure of a company's solvency here is "net cash flow from operations". But any of the company's sources of cash, whether from operating activities, investing activities or financing activities, can be used to pay off the company's debt. So. If the numerator of the cash flow from operating activities used instead of the sum of the three net cash flows. To calculate the cash flow ratio will be better.

VI. Suggestions to improve the limitations of financial statement analysis

1 Strengthen the use of information in the notes to the financial statements.

The notes to the financial statements are additional explanations and detailed explanations of the contents and items that cannot be or are difficult to adequately express in the financial statements themselves. In the analysis of corporate finance. Should make full use of the information in the financial statements and notes to the statements, linked to other relevant information. Careful and in-depth analysis, research, in order to improve the understanding of the overall situation of the enterprise, a more accurate evaluation of the enterprise's financial position and business performance.

2. Improve the comprehensive ability and quality of financial statement analysts.

Regardless of which financial statement analysis method. The judgment of analysts is particularly important to draw the correct conclusions. Usually to strengthen the training of financial statement analysts, improve the comprehensive quality of analysts, improve their interpretation of the statement indicators and judgment ability, and make them at the same time with accounting, finance, marketing, strategic management and business operations and other aspects of knowledge. Skillful mastery of modern analytical methods and analytical tools, in practice to establish a correct analysis of the concept, and gradually cultivate and improve their ability to analyze the problem of judgment and comprehensive data collection ability and mastery of the ability to use, greatly for the management of the enterprise and decision-making to provide a true and reliable basis.

3. Quantitative analysis combined with qualitative analysis.

Modern enterprises face a complex and changing external environment, these external environments are sometimes difficult to quantify, but will have an important impact on the status of the enterprise's financial statements and operating results. Therefore, in the quantitative analysis at the same time, the need to make qualitative judgments, on the basis of qualitative judgments, and then further quantitative analysis and judgment, giving full play to the rich experience of people and the amount of precision calculations of the two aspects of the role, so that the statement analysis to optimize.

4. Dynamic analysis and static analysis combined.

The production and operation of business and financial activities is a dynamic development process. Therefore, attention should be paid to the dynamic analysis, in the past to clarify the situation on the basis of analyzing the current situation of the possible results of the proper prediction of the future of the enterprise has a certain help.

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