Key Indicators For Financial Statement Analysis

< p > 1. analysis of short-term solvency.

Short term solvency refers to the degree of guarantee that the current assets of a company can repay the current liabilities in full and on time. It is reflected in the relationship between the liquidity of the assets and the number of debts.

The measurement indexes are mainly two items: the mobile ratio and the quick ratio.

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< p > (1) flow ratio.

The liquidity ratio indicates that the liquidity assets can be converted into cash in order to repay the current liabilities before the maturity of the short-term debt. The formula is: current ratio = current assets * current liabilities.

The current assets are larger than current liabilities, which generally indicates that the short-term repayment ability is strong. The higher the current ratio, the greater the liquidity of the assets of the enterprises. This indicates that the assets with sufficient assets are used to repay debts, but the higher the liquidity ratio is, the better.

Because the ratio is too large, which indicates that more liquid assets will affect the turnover efficiency and profitability of the operating capital; if the ratio is too low, it means that the solvency is poor.

Therefore, it is generally believed that a reasonable minimum flow ratio is 2.

This is because in the current assets, the worst amount of liquidity is about half of the total liquid assets. The remaining liquid assets are at least equal to current liabilities, and the solvency of enterprises will be guaranteed.

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< p > (2) < a href= "http://www.91se91.com/news/index_c.asp" > quick ratio < /a >.

The quick ratio is used to measure the ability of an enterprise's current assets to be used immediately to repay current liabilities.

The formula is: quick ratio = (current assets one stock) * current liabilities.

It is generally believed that a quick ratio of 1 or a little larger is better. The rate of less than 1 is considered to be a short-term debt paying ability, but it can not be generalized.

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< p > 2. analysis of long-term solvency.

The analysis of the long-term solvency of the enterprise is mainly to determine the ability of the enterprise to repay the debt principal and to pay the interest of the debt.

The main indicators are asset liability ratio, equity ratio and interest protection ratio.

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< p > (1) asset liability ratio.

The asset liability ratio shows the proportion of total liabilities in the total assets of an enterprise.

This index is used to measure the ability of enterprises to make use of the funds provided by creditors to conduct business activities, and to reflect the degree of security of creditors' loans.

The formula is: asset liability ratio = total liabilities * total assets.

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< p > (2) property rights ratio.

Also known as capital liability ratio, is an important symbol of the firm's financial structure, reflecting the degree of protection of creditors' rights and interests by the owners of enterprises. The formula is: property ratio = total liabilities * owners' equity < /p >

< p > (3) < a href= "http://www.91se91.com/news/index_c.asp" > interest protection multiple < /a >: interest guarantee ratio = pre tax profit * interest on debt.

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< p > 3. financial analysis of operational capability.

Operational capability refers to the size of a company's role in financial objectives through the combination of internal human resources and production data. The main indicators are business cycle, inventory turnover, receivables turnover, turnover of current assets and turnover of total assets.

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< p > (1) business cycle.

The business cycle refers to the period from the acquisition of inventory to the sale of inventory and the recovery of cash. The formula is as follows: the business cycle = inventory turnover days ten receivable turnover days.

Generally speaking, the short operating period indicates that the capital turnover is fast and the business cycle is long, which indicates that the capital turnover rate is slow.

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< p > (2) < a href= "http://www.91se91.com/news/index_c.asp" > inventory turnover < /a >.

This index is used to measure the cash flow rate of the enterprise's inventory. The formula is: inventory turnover = selling cost * average balance of stock.

The more the number of revolving times in a certain period, the less the number of days required per week. This indicates that the higher the operating efficiency is, the more moderate inventory will be. If too low, it means that excessive purchase or inventory backlog should be taken in time.

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< p > (3) accounts receivable turnover rate.

The turnover rate of accounts receivable is used to measure the degree of liquidity of accounts receivable. The formula is: accounts receivable turnover = net income of credit sales * average balance of accounts receivable.

The index reflects the speed and efficiency of corporate accounts receivable realisation.

It is generally believed that the higher the better, because it shows that accounts receivable is fast, funds are occupied little, bad debt losses can be reduced, liquidity is high, solvency is strong, and accounts receivable costs may be reduced correspondingly.

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< p > (4) analysis of profitability.

Profitability is the ability of an enterprise to earn profits.

For investors, not only their dividends are paid from profits, but profit growth can make stock prices rise, and they can also get profits when pferring shares.

For creditors, profit is an important source of debt repayment.

For business operators, the level of profitability is the most important index to measure their performance and management effectiveness. At the same time, employees will get more benefits because of the high level of corporate profits and the improvement of collective welfare facilities.

In short, all those concerned with enterprises are concerned about the profitability of enterprises and hope that they will continue to improve.

The main indicators reflecting corporate profitability include sales net interest rate, gross sales margin, net asset interest rate, net return rate and so on.

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