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Finance is a very important concept in accounting. The result of financial analysis is important to deterine the precise information needs of the users, and the decisions the user have to take after analysing the relevant information. And you can according the financial analysis to manage your enterprises more efficiency.
Here, there’re some financial accounting count method:
- operating ratios
- short-term liquidity ratios
- working capital efficiency
- medium and long-term solvency ratios
- investor ratios
Ratios fall into several groups, the relevance of particular ratios depending on the purpose for which they are required. For example, the management need information for controlling of costs, improving profitability; the lenders need information for borrowing and credit purposes; the shareholders and investers need information for buying and selling shares.
The operating ratios show the profitability of a business. Such as: gross profit percentage, percentage growth in sales, ROCE.
Gross profit percentage = Profit/Sales*100
Percentage growth in sales = (Sales this year – Sales last year)/Sales last year*100
ROCE(Return on capital employed) = Profit before interest and tax/(Share capital + Reserves + Long term liabilities)*100
The short-term liquidity ratios include: current ratio, quick ratio.
Current ratio = Current assets/Current liabilities
Quick ratio = Current assets(less inventory)/Current liabilities
The working capital efficiency include: inventory turnover ratio, receivables collection period, average period of credit.
Inventory turnover ratio = Average inventory during the accounting period/Cost of sales*365
Receivables collection period = Closing trade receivables/Average daily credit sales
Average period of credit = Closing trade payables/Credit perchases per day
The medium and long-term solvency ratios include: gearing ratio.
Gearing ratio = (Loans + Prefernece share capital)/(Total assets – Current liabilities)
The investor ratios include: dividend per share, dividend cover.
Dividend per share = Dividend paid/Number of shares
Dividend cover = (Profit – Payment to preference shareholders)/Dividend paid
Every ratio shows the corresponding condition in the company. In fact, the systematic financial analysis for a company is a big project. But you can know how to manage your enterprises more efficiency from it.
