Moldova State University

Faculty of Economic Sciences

Department of Finance and Banking

Individual work
at the course
Financial analysis of the enterprise

Elaborate:
Jomir Florentina (FB 1602A)

Chisinau 2018

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 1. Assets analysis
Tabel 1.1
Horizontal and vertical analysis of assets

Assets Previous year Current year Rate of

increase
Amount, Share, Amount, Share,
(decrease),
lei % lei %
%

Long – term 0 0 0 0 0

Current assets 48444 100,00 61959 100,00 127,90

Total assets 48444 100,00 61959 100,00 127,90

Sales revenues 414662 - 297517 - 71,75

Conclusion: The value of total assets of OGORODNICOV – IUTA LLC has registered an
increase compared to the previous year by 27,90%.An increase in the volume of assets is associated
with a probabiblity of future economic benefits realization, favourable aspect to sustainable
development of an entity. The increase in the volume of assets is due to an increase of current
assets by 27,90. The increase in the volume of total assets and current assets is the same, because
the company does not own long-term assets. The increase in the total current assets value was due
to the company purchasing receiving more cash than in the previous year. The vertical analysis
confirms the fact that the company does not own any long-term assets and the current assets
represent 100% of the total assets of the company for both years. While performing the correlative
analysis of the assets and business operating activity in dynamics, it can be remarked that the rate
of increase of assets exceeds the rate of revenues increase (127,90>71,75). This situation reflects
a decrease in the degree of assets utilisation. Such correlation between these two indicators can
mean the diminuation of total assets efficiency, as well as the reducion of assets turnover.

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 Tabel 1.2
Structure analysis of the assets using ratio method

Ratios Previous year Current year Difference(+;-)

Rate of asset immobilization 0 0 0

Share of production assets 41,16 16,54 -24,62
Tehnichal composition of the 0 0 0
capital
Rate of liquid assets 58,70 83,35 24,65
Rate of pledget assets 0 0 0

RAI= (Long-term assets/Total assets)*100%

SPA= [(Book value of fixed assets+Inventories)/Total Assets]* 100%
TCC=(Book Value of fixed assets/Current assets)*100%
RAL= (Cash/Total Assets)*100%
RAP=(Pledged assets/Total assets)/100%

Conclusion: The Rate of Asset Immobilization shows the composition of equity invested in long
term assets. However, The company OGORODNICOV – IUTA LLC does not have any long-term
asssets, which means that it does not invest in them. The share of production assets has a tendency
of reduction. In was 41.16% in 2014 and diminished significantly in 2015 by -24,62%. This fact
can lead to the decrease of the operating activity volume, because this ratio represents the share of
assets that generate profit. The correlation between fixed assets and current assets is 0, since the
company does not own any fixed assets. However, the weight of perfect liquid assets in the total
amount of assets has increased from 58,70% (2014) to 83,35% (2015) and reflects the capacity of
the company to resolve its current liquidity problems. The rate of pledged assets, which reflects
the capacity of the company to secure borrowing contracts cannot be calculated, since the company
does not have any pledged assets,

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2. Liabilities analysis
Tabel 2.1
Horizontal and vertical analysis of liabilities

Liabilities Previous year Current year Rate of

increase
Amount, Share, Amount, Share,
(decrease),
lei % lei %
%

Owner’s 38366 79,18 41243 65,56 107,50

equity
L-t Liabilities 0 0 0 0 0

Current 10087 20,82 20716 33,44 205,37

Liabilities
Total equity 48453 100 61959 100 127,87
and liabilities

Conclusion: The value of the total equity and liabilities of the company The company
OGORODNICOV – IUTA LLC has increased by 27,87% in 2015. This increase has been
positively influenced by the increase in the value of the owner’s equity by 7,50% an by the
increase in the value of current liabilities with 105,37%. The increase in company’s equity
is a good sign, because this means that the own sources for financing the assets have grown.
The increase in the current liabilities value more than 2 times may be dangerous. It means
that the comapny has taken a lot of external resources that it will eventually have to pay
back. The company does not have any Long Term Liabilities.

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 Tabel 2.2
Structure analysis of the assets using ratio method

Ratios Previous year Current year Difference(+;-)

Autonomy ratio 79,20 66,56 -12,64

The debts to assets ratio 20,82 33,44 12,62
The debts to equity ratio 26,29 50,22 23,93
The assets to debts ratio 480,26 299,08 -181,18
The assets to equty ratio 126,27 150,23 23,96

Autonomy Ratio= (Owner’s Equity/Total Assets)*100%

The debts to assets ratio=(Total debt/Total Assets)*100%
The debts to equity ratio=(Total debt/Equity)*100%
The assets to debts ratio=(Total assets/Total debt)*100%
The assets to equty ratio=(Total assets/Owner’s equity)*100%

Conclusion:From the ratio structure analysis of financing sources may detach the following
conclusions regarding the share of financing sources of the entitity:
The autonomy ratio indicator reflects the own contribution to financing all the property items of
the company. It characterizes the weight of own equity in the total financing surces. The automony
ratio has decreased from 2014 to 2015 by -12,64. This happened due to an increase in the total
asset value. However, in both years, the Autonomy Ratio value is satisfying and it finds itself in
the safety interval (33%-100%).
The debt to asset ratio compares the value of total debt with the value to total assets.The higher
the ratio, the higher the degree of leverage and, consequently, financial risk. In our case , the
company has a normal degree of leverage. However, a bad sign is that the ratio has increased from
2014 to 2015 by 12,62. This is due to a major increase in debt.
The debt to equity ratio indicates how much debt a company is using to finance its assets relative
to the value of shareholders’ equity. In our case, the value of this indicator has increased from
2014 to 2015 by 23,93%, which is not a good sign. A high debt/equity ratio generally means that
a company has been aggressive in financing its growth with debt. Aggressive leveraging practices
are often associated with high levels of risk. This may result in volatile earnings as a result of the
additional interest expense.
The assets to debt ratio shows how well the value of assets cover the value of debt. In our case, the
situation is favourable, but the major decrease in this indicator’s value by -181,18 could indicate
some dangerous crediting practices. The company must be careful and increase the value of its
assets or decrease the value of its debt.

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The asset to equity value shows the relationship of the total assets of the firm to the portion
owned by shareholders. This ratio is an indicator of the company’s leverage (debt) used to
finance the firm. The increase by 23,96% of this ratio might indicate that the company has taken
a bigger debt and should be careful.

3. Liquid ratio analysis

Tabel 3.1
Liquid ratio analysis

Ratios Previous year Current year Difference(+;-)

Current ratio, coef. 4,80 2,99 -1,81

Quick ratio,coef. 2,82 2,50 -0,32
Cash ratio, coef. 2,82 2,49 -0,33

Current Ratio= Current assets/ Current liabilities

Quick Ratio= (Current Assets-Inventories-Other Current Assets)/Current Liabilities
Cash Ratio= Cash/Current Liabilities

Conclusion: The current ratio indicates the extent to which current liabilities are covered by
those assets expected to be converted to cash in the near future.For the company
OGORODNICOV – IUTA LLC, the current ratio for both years is not contained within the
safety interval (2,0-2,5). However, this high ratio could be prefered by creditors, since it will
reduce their risk. It is not favourable for the company though, because it means that the entity is
not efficiently using it’s financing sources. The ratio has decreased by -1,81, which is favourable
for the company. The quick ratio reflects the weight of current liabilities, which can be paid due
to mobilization of cash, current financial investments ad current receivables.The company’s
quick ratio for both years is much higher than the safety level, which is not a good sign. However
the decreasing tendency of -0,32 is appreciated.The cash ratio reflects the weight of the current
liabilities, which can be paid immediately. Yet again, this ratio for both years is much higher
than the safety level. The indicator has decreased from 2014 to 2015 by -0,33, which shows a
better situation for the company.

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 4. Analysis of profit (loss) before tax
Tabel 4.1
Initial data

Indicators Previous year Current year Difference(+;-)

Result from operating activity 41304 11884 -29420

Result from other activities 0 0 0

Profit (loss) before tax 41304 11884 -29420

Conclusion:The result from operating actibity for the company OGORODNICOV – IUTA
LLC has decreased substantially by -29420 from 2014 to 2015. This happened because the sales
revenues decreased and expenses, such as commercial, general and administrative expenses have
incresed. The same decrease has happened for the profit before tax, because the company has no
result from other activities. In order to earn more profit, the company should increase its sales
and diminish the expenses related to its operating activity.

Tabel 4.2
Ratio analysis of profit (loss) before tax

Ratios Previous year Current year Difference(+;-)

Ratio of result from operating activity 100 100 0

Ratio of result from other activities 0 0 0

Ratio of result from operating activity=(Result from operating Activity/Profit(loss) before tax)*100%
Ratio of result from other activities=(Result from other activities/Profit(loss) before tax)*100%

Conclusion: The result from operating activtity ratio for the company OGORODNICOV – IUTA LLC, for
both years is 100%. It means that the operational activity brings the total contribution to the general
efectiveness of the compnay constitutes.This means high profit mergins.This is happening due to the
fact that the company has no result from other activities.

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 Describe role of financial analysis in financial planning.
Effective planning and financial management are the keys to running a financially successful
business. Ratio analysis is critical for helping with understanding the financial statements, for
identifying trends over time and for measuring the overall financial state of the business. In
addition, lenders and potential investors often rely on ratio analysis when making lending and
investing decisions.
Ratio analysis is the application of ratios in comparing similar variables. Ratio analysis is the
process of systematically manipulating figures from the financial statements of a company to
produce information that are used as part of investment decision making process. It is the
application arithmetic on financial information that is contained in the annual report of a business
entity.
The most difficult part of ratio analysis is finding the right proxy upon which to base and
analyze the numbers calculated from the ratio calculation exercise. Ratio analysis does not end in
the calculation of numbers. In fact, the number crunching aspect of ratio analysis only accounts
for about 35% – 40% of the amount of work needed in conducting a meaningful ratio analysis
exercises. The bulk of the job is on the interpretation part of the process. In today’s business word
that is practically run by technology, ratios are quickly and more efficiently calculated
by accounting software that humanly generated ratios are looked with suspicion as they may
contain some errors.
Ratios are critical quantitative analysis tools. One of their most important functions lies in their
capacity to act as lagging indicators in identifying positive and negative financial trends. The
information a trend analysis provides allows to you to make and implement ongoing financial plans
and, when necessary, make course corrections to short-term financial plans. Ratio analysis also
provides ways to compare the financial state of the business against other businesses within the
industry or between the specific business and businesses in other industries. The sheer numbers of
available financial ratios makes it important to research and choose ratios most applicable tothe
specific company.
Balance sheet common size ratios are important for making comparisons of assets and liabilities.
These financial ratios focus on calculating each asset on the balance sheet as a percentage of total
assets and each liability as a percentage of total liabilities plus owner’s equity. Calculating and
comparing common size ratios for corresponding reporting periods in two consecutive years helps
identify trends such as decreasing cash and increasing accounts receivable balances. Financial
planning goals might then include strengthening your accounts receivable collection policy and
tightening credit-granting guidelines
Operating expense and turnover ratios are critical for helping to assess how efficiently the business
is utilizing assets and managing liabilities. An operating expense ratio compares operating
expenses such as rent, inventory purchases and advertising to sales revenue. While a low ratio
indicates the business is managing expenses successfully, a high ratio signals a need to course-
correct ongoing financial plans. Turnover ratios typically need deeper analysis, with both
extraordinarily high and low ratios indicating a cause for concern. For example, a high inventory
turnover ratio indicates a need to review the inventory budget, because the business could be losing
sales due to frequent stock-outs.
Cash and liquidity ratios help determine whether it is possible to afford to invest in capital assets
or long-term business growth. A current and working capital ratio both are useful for assessing
whether the business has enough liquidity to pay for daily operating and short-term debt expenses.

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For instance, a current ratio compares current assets to current liabilities. A ratio of 3 to1 indicates
the business is sufficiently liquid. At this point, it is possible to begin incorporating capital or
market investments into the financial plan.
1.To summarize the information above, the financial analysis is important:
2.To give meaning to absolute figure: most numbers that are found in the financial statements of
companies will be vague and meaningless if a scientific method of ratio analysis is not performed
on the figures.
3.For planning and forecasting: managers through ratio analysis can find a trend and based on that
trend, project into foreseeable future what an item of financial statement would most likely be.
4.As a basis of decision making: the output of ratio analysis can be used as a basis for making
investment decision. An investor who after calculating some investment ratios would be better
equipped to make decision of whether to invest in a project or not to invest.
5.To compare results and performance: by calculating ratios, an insight of how management are
doing can be obtained.
6.For analysis of strengths and weakness: through ratio analysis, management can find out
department or division that is not relatively doing well and then take some corrective actions.
7.For analyzing change in the form of trend: professional investors will always say that the trend
is your friend. This trend is found using ratios and ratio analysis.