Analysis of the financial activities of the enterprise serves as an effective tool for the qualified choice of a partner from both the domestic and foreign markets. The main source of data on the financial stability of a potential counterparty is the financial statements.
In a market economy today, the enterprise’s accounting is based on a synthesis of accounting data and the use of the information link that connects the enterprise with counterparties, which are the main users of such data.
In the modern business environment, any users of accounting information set themselves the task of analyzing the financial activities of the enterprise, on the basis of which in the future we can draw certain conclusions about the subsequent areas of activity. This analysis has its own sources, purpose and methods.
As sources, forms of financial statements are used together with its annexes. Analysis of the financial activities of the enterprise is responsible for achieving its goal - identifying the possibility of deep consideration of the external and internal relations of a business entity with the establishment of its solvency, financial position and profitability.
The result of the work should be a clearly formed picture of its activities, presented to the management or other persons interested in the financial condition of this enterprise.
For many decades, business valuation methods have been based on data provided by the accounting system. Among these, it is customary to distinguish the following methods:
- Comparison of the market and book prices - assessing the effectiveness of the existence of the enterprise, which consists in the ratio of the book value of available resources with their market value. This method is used in the formation of the so-called investment portfolio to maximize the profitability of the enterprise.
- Market value added, reflecting the market value of the enterprise, taking into account the capital involved in a certain period. This indicator reflects the effectiveness of the enterprise. It is determined by dividing the market value of borrowed and equity capital by the value of investments. Economists have proven that this indicator helps to capture the future value of income.
- Comparison of market value and earnings per share, showing the projected profit of a business entity multiplied by the total number of its shares. Thus, the private value obtained of the stock is at its potential income.
- Economic value added, which is an estimate of income. This indicator reflects the economic profit that a business entity must have for the survival of the market.
Analysis of the financial activities of the enterprise will be incomplete without considering the return on investment, with the help of which the effectiveness of various assets used in generating income is assessed. The use of this indicator requires a clear interpretation of the concept of "investment".
