Activity Analysis In Financial Analysis

If the business is highly efficient and the assets are fully utilized, the return on assets can be substantially increased as long as the profit margin of the commodity sales is raised a little.

Activity analysis mainly measures the utilization efficiency of average total assets, as well as the efficiency of cash, accounts receivable, inventory, current assets, working capital and fixed assets.

Analysis indicators are:

The measurement of the total assets utilization efficiency of enterprises

As a benchmark.

The measure is divided by the net sales income of the enterprise in the whole year divided by 1/2 of the total assets and the total assets at the beginning and end of the year.

The formula is as follows:

Total assets turnover = sales revenue average total assets

In principle, the rate of accounts receivable obtained by dividing the net credit sale by the average balance of accounts receivable at the beginning and end of the period is used to measure the number of accounts receivable recovered in one year.

Higher turnover times indicate better operating efficiency.

Since it is difficult for analysts to divide sales revenue into two categories, credit sales and cash sales, common sales revenue is divided by average accounts receivable to calculate accounts receivable turnover.

This ratio is too small, indicating that the receivables are too long to receive, and accounts receivable management is inefficient.

The formula is as follows:

Accounts receivable turnover = net account receivable average receivable

or

Accounts receivable turnover = sales receivables average receivables

In order to test receivables receivables, the average receivables period is also used.

Average receivables =365, accounts receivable turnover

The average receivables period is compared with the company's credit period (the maximum period allowed by the company to allow customers). It can be seen that the quality of accounts receivable is good or bad.

The shorter the average account receivable, the greater the liquidity (liquidity) of accounts receivable.

Related links:

The long-term solvency analysis also refers to the analysis of the company's capital structure or financial structure.

This is because the corporate long-term solvency in the future has many factors that can not be controlled, and can only be evaluated indirectly through the analysis of the company's capital structure.

The so-called capital structure refers to the proportion of the enterprise's own funds and borrowed funds.

The specific indicators are as follows:

(1) the ratio of shareholders' equity to liabilities.

The capital of an enterprise comes mainly from shareholders and creditors, that is, stockholders' equity and liabilities.

The ratio of shareholders' equity to debt shows the relative proportion of the two funds.

The larger the ratio, the less debt the company has, the more secure the interests of the creditor are. On the contrary, it shows that the enterprise has too much debt and the financial structure is not sound enough. Once the recession happens, enterprises will have difficulty in paying debts and the interests of creditors will be less protected.

The ratio formula is:

Shareholders' equity to debt ratio = shareholders' equity and liabilities

(2) debt ratio and equity ratio.

The total assets of a company are equal to the total liabilities and the total amount of shareholders' equity.

The total amount of liabilities divided by the total amount of assets is the ratio of liabilities. The ratio of shareholders' equity to total assets is equity ratio, also known as the ratio of self owned capital.

The sum of these two ratios is equal to 100%. They are used to measure the ratio of funds supplied to creditors and shareholders in the total assets.

The formula is:

Debt ratio = total liabilities, total assets

Equity ratio = shareholders' equity and total assets

When the equity ratio is too low, that is, the debt ratio is too high, the protection of creditors will be reduced. However, if the equity ratio is too high, it will also reduce the role of financial leverage and be more adverse to shareholders.

Therefore, we must not be extreme in measuring these two ratios.

In addition, industry characteristics should also be noted, for example, the proportion of equity in the financial sector is generally much lower than that in other industries.

(3) the ratio of fixed assets to stockholders' equity.

This ratio can not only be used to test the debt paying ability of enterprises, but also shows whether the investment in fixed assets is appropriate and whether enterprises have financial risks exposed under long-term use of short-term funds.

The formula is:

Fixed assets to stockholders' equity ratio = fixed assets, total shareholders' equity

If the ratio is less than 1, it means that the funds needed to purchase fixed assets are all from shareholders, and the company is relatively stable.

If the ratio is greater than 1, it means that some of the funds needed for the purchase of fixed assets are from creditors.

(4) the ratio of net tangible assets to long-term liabilities.

Generally speaking, when obtaining long-term loans or issuing bonds, enterprises must use their tangible assets as collateral.

This ratio can be used to measure the level of protection of assets in liquidation value for long-term liabilities.

The net assets of tangible assets refer to the intangible assets which are not entity existing except total assets, such as goodwill, trademark right, patent right and concession.

Net tangible assets to long-term debt ratio = net tangible assets, long-term liabilities

When the ratio is greater than 1, the creditor with long-term liabilities has better protection.

(5) interest protection multiple.

Many analysts believe that unless the business is over, it is unlikely that the liabilities will be fully disposed of in the form of disposal of assets, while the common surplus will cover the principal and interest of long-term liabilities.

Therefore, it is necessary to analyze the relationship between surplus and interest expense.

Interest protection multiple, also known as earnings multiplier or interest earned multiple, is earned by the company's interest and income before interest divided by total interest.

Interest guarantee ratio = interest payable and pre tax profit, interest expense for the current period.