The world is full of entrepreneurs whose organizations are built on specific work analyzes, reports, revenue schedules, and so on. For them, business is life, and they invest it in their business. What is needed for a successful novice entrepreneur? Or what advice can use even the most experienced businessman? We will analyze in this article.
What is an economic analysis?
Each economic activity must, one way or another, pass a certain test. Such a check usually becomes economic analysis or analysis of financial stability. It is they who determine the ability of the enterprise to develop, provide a quality product to the sales markets, be responsible for its consumption and, naturally, make a profit for it.
These reports begin to be carried out on the first indicators of products sold. They help to find out absolutely all factors, both positive and negative, that directly affect the quality of a product or its production. They also determine the main ways to solve problems and determine the future prospects of the enterprise.
The main blocks of the analysis
Each analysis consists of certain stages (blocks) during which problems of different levels of complexity and importance are solved. Economic research is divided into the following stages:
- analysis of the volume of the product and the sale of goods on the market;
- the use of financial funds, consideration of the prospects for investment;
- security and use by the enterprise of necessary resources;
- production costs;
- financial sustainability of the business.
Following these criteria, which are present at every economic analysis of the enterprise, a businessman can guarantee his production quality promotion.
Main goals
Each of the units of analysis of the enterprise has its own specific tasks, the performance of the organization depends on the implementation or non-fulfillment of which.
For example, the study of the use of fixed assets that the company has is divided into several points:
- composition and movement of funds;
- the impact of the use of funds allocated for remuneration on the volume of production of the organization;
- efficient use of financial resources;
- identifying the prospects for the development of the budget and funds, increasing the efficiency of their use.
Cost price
The next block is cost analysis. It is divided, in turn, into:
- comparison of amounts, costs, items, calculations and reports;
- conclusions about current trends in entrepreneurship.
Financial reports
Each economic analysis involves maintaining financial statements. This also applies to the implementation of the relevant work, which consists of:
- installation financial analysis of the organization, its content;
- determining the effectiveness of how the company is currently operating, its financial situation;
- maintaining a sound finance policy.
But in the financial sector, everything is not so simple. The report can be divided into detailed and express analysis.
Detailed - implies a detailed and accurate description of the position of the organization. That is, it takes into account both the financial and property parts. He can specify and supplement the previous procedures for improving the business.
This analysis aims to identify the parameters of the organization’s development and, unfortunately, statistics show that a fairly large number of Russian businesses are in an unstable financial, and not only, condition.
An express analysis is needed for a routine audit; it involves the selection of a small number of indicators from preliminary reports, then an analysis of accounting activities and general indicators.
What is a financial analysis?
An integral part of every organization, business project, even the planning of opening a new organization is financial reporting and analysis, which determine the opportunities, development prospects, parameters and methods of conducting. This work is carried out by a qualified staff - a business analyst.
Economic analysis of an enterprise always includes such a thing as financial stability. Without it, not a single entrepreneurial activity will raise large profits, and, possibly, will incur losses.
The financial condition of the enterprise is a whole system of indicators that reflect its ability (or not ability) to pay off debts, loans, plan investments. Financial activity covers most of the organization’s development processes, such as the movement and maintenance of the property of an enterprise, and control over how it is used.
Analysis Algorithm
So, we settled on the fact that each enterprise critically needs an analysis of financial stability. It is also part of economic analysis. But where to start? There is a whole algorithm for this, following which helps many entrepreneurs.
- You should always start by defining the goals of a business project, its capabilities, prospects and objectives for a specific period.
- Analysts are developing a special program of indicators that systematizes the organization’s indicators into specific groups. This helps to more easily characterize objects and conduct economic and economic analysis.
- All information in reports used by analysts is checked for accuracy and reliability.
- A planned comparison of reports of different years is carried out, the prospect of progress is determined.
- The possibilities (or not opportunities) of using special reserves, which are usually used, are identified in order to increase the efficiency of sales and the operation of the enterprise as a whole.
- An overall performance rating is given.
According to such a plan, the main analyzes operate, which are actively featured in the activities of each organization. Next, we dwell on the indicators - that is, the coefficients by which the necessary verification is carried out.
Characteristics of the coefficients
Coefficients play a large role in each analysis, as the research itself is important for the entire enterprise. What are these odds? We will discuss the main ones.
Organization property position
It is necessary to describe the necessary amount of finance that the entrepreneur has, part of the fixed and working capital in the total amount of all used assets, part of the funds that were put into operation and taken out of it.
Such important indicators as part of fixed assets, retirement or renewal ratios are most important for enterprises whose field of activity is industry-oriented and the functioning of which is based on the use of machine tools and other heavy structures.
However, these ratios do not play almost any role for those enterprises and organizations whose field of activity is aimed at trade.
Liquidity
Due to the fact that different types and even groups of assets that are in circulation have a completely different degree of liquidity, a certain number of their degrees is calculated. For example, accounts receivable or stocks of necessary raw materials are already unsuitable or not suitable enough to repay the debt, then financial means are absolutely suitable for repaying any debt.
The development of economic analysis has reached a high enough level to determine all these degrees.
Liquidity indicators are becoming more informative and useful for organizations, to some extent, short trading stages (cycles):
- Trade in a product and the provision of services in which trade reaches mass demand.
- Light industry.
- Credit financing institutions.
- Shipbuilding, aircraft engineering, construction, large-scale research and development of scientists (their assets, in the beginning, have an insufficient degree of liquidity).
Thus, having different indicators and degrees of liquidity, completely different research results can be achieved. An economic analysis of the main criteria will make it possible to improve the enterprise management system.
Financial stability
First you need to evaluate the structure of income, sources of financing, if you look at them from the point of view of the organization’s ownership (borrowed or owned), availability and risk factors for their use. By the way, indicators of financial stability directly analyze the independence (or dependence) of a given enterprise on external financial factors (investments, creditors, etc.).
This group is extremely important for the organization that actively uses bank loans, debts, uses investments. Socio-economic analysis involves regular reporting on this matter.
Also, with the help of all the above factors, a comparative analysis of all the resources involved is carried out to achieve a specific goal: labor, financial resources, reserves, stocks and so on.
Return on investment
There is a whole algorithm that helps to calculate this indicator.
The return on investment ratio implies the product of the return on sales of assets in circulation. Moreover, each of these two indicators has the property to be distributed on certain factors, which subsequently affect all indicators. The analysis of economic data here is also extremely important.
So, the calculation algorithm is as follows:
- The full cost consists of the production, trading and administrative expenses of the company.
- Net profit is calculated by deducting the total cost of all revenue. Then the organization has indicators of net income.
- Profitability implies a ratio of sales and net revenue.
- Current assets are formed from financial reserves, accounts and accounts payable.
- Non-current assets are all buildings owned by the enterprise.
- The turnover ratio means the ratio of net profit to all current and non-current assets.
- The final indicator of investment return is in the presence of profitability and turnover.
The algorithm presented above is the “Investment Return Tree”, or “ROI Tree”.
That’s how it is sometimes important to comply with all the algorithms, rules, methods of running enterprises, and also have qualified specialists so that your business thrives.
It is also important to conduct financial and economic analyzes that will help identify existing problems, eliminate them and prevent the emergence of new ones.