Analyzing and finding weaknesses in the financial situation of the company, especially the financial structure to improve the operating efficiency of the company is a very necessary job. In front of an active company, how do you know if the financial structure of a company is favorable or not? What is the cause of the poor financial structure of this company? With such a situation, can the company attract investors and economic organizations? The basic purpose of the topic is based on past and current financial data of Phu Chau Limited Liability Company to calculate and determine the indicators reflecting the current financial capacity of the business. Predict the future financial capacity as well as the financial risks that businesses may face. There by giving solutions and recommendations to improve the main capacity as well as the efficiency of production and business activities of the company. Qualitative research method: This method is applied to help detect and learn about factors that affect and affect corporate financial capacity. Quantitative analysis method: Used to analyze financial indicators, make conclusions about the current financial capacity of the company. The source of data used for this research method is the companys financial reporting system for the period of 20182020. Through research, I can see the financial situation of the company, but still limit the disadvantage to the company in the future. Therefore, the knowledge I have learned plus applying it into practice to analyze and provide complete solutions for the management of financial structure at the company. I hope that these solutions will be applied at the company to help the company achieve better results in the coming years.
GENERAL THEORETICAL BASIS FOR ANALYSIS OF
GENERAL OVERVEW OF CORPORATE FINANCIAL
1.1.1 The concept of corporate financial structure analysis
♦ Financial structure is to examine the structure and the relationship of both assets and capital The asset structure of enterprise reflects the capital use situation of enterprise The fund structure reflects the capital mobilization of enterprise for production and business activities Enterprise’s policies on mobilization and use of capital have a strong impact on business efficiency as well as risks of enterprises
Financial structure is a concept used to refer to the structure and variation of each type of assets in the total assets as well as the structure and variation of each type of capital in the total capital of the enterprise
♦ Financial structure analysis is an overview of the investment situation and capital mobilization through the determination of structure and volatility of each asset type in total assets as well as the structure and volatility of each type of funds, which shows the operational efficiency and risk of the business.
Financial structure analysis is carried out by ratios that reflect the structure, these ratios are built by comparing one or several groups of asset items or capital sources with total assets by capital.
Asset structure is the percentage of each corresponding asset type in the total assets of enterprise.
Capital structure is the percentage of each corresponding fund type in the total funds of enterprise.
1.1.2 The meaning of corporate financial structure analysis.
- Analyzing corporate financial structure is very important to businesses and people who are interested in the business situation of the business.
- Helping businesses to self-evaluate their strengths and weaknesses to consolidate, promote or overcome, and improve in management.
- To bring into play all market potentials, to make the most of the enterprise's resources to achieve the highest efficiency in business.
- The results of analysis help businesses predict, prevent and limit business risks In addition, it also helps objects such as investors, lenders, and employees to make appropriate decisions about whether to cooperate with enterprises or not.
Financial managers in enterprises are interested in analyzing the financial structure of the business, thereby detecting characteristics in the use of capital, raising capital to improve the efficiency of business operations, and appropriate sponsorship policies.
Financial structure analysis is also used by managers as a basic survey tool in choosing investment decisions, as an evaluation tool for managers.
Analyze the financial structure to see what stage the enterprise is capable of paying debt to, thereby finding solutions to ensure the existence and development of the business
Financial structure analysis is not only important to the business but is also of interest to investors, suppliers, credit providers (banks), regulators. government,…
Their concerns are mainly on the ability to pay back, the interest rates,the solvency of the capital and the risk Therefore, they need information about financial conditions, financial performance, business results and potentials of the business Investors are also concerned with operating management activities But that creates safety and efficiency for investors.
Their concern is with the business's ability to repay debt Through analyzing the financial situation of the business, they pay special attention to the amount of money and assets that can be converted into fast money so that they can compare and know the immediate payment capacity of the business karma.
Suppose we put ourselves in the case of a lender then the first condition we pay attention to is equity, if we are not sure that our loan will be paid off then in the case of a joint venture The business is at risk of not having the capital to insure them At the same time, we are interested in the profitability of the business because that is the basis of the repayment of capital and interest.
For state management agencies, through analyzing the financial situation of enterprises, the leadership capacity of the board of directors will be assessed, thereby making decisions on additional investment in capital for state-owned enterprises or not.
Besides business owners, investors, workers have basic information needs like them because it relates to rights and responsibilities, to their current and future customers.
Financial structure analysis will help users of information, properly evaluate the potential financial strength of the business, thereby making the right decisions, in accordance with their goals of interest.
1.1.3 Tasks of corporate financial structure analysis
Analysis of financial statements must provide sufficient information useful to investors, lenders and other users of financial information to help them make the right decisions when making the first decision investment,loan decisions Financial statement analysis must provide sufficient business owners, investors, lenders and other information users in assessing the ability and certainty of cash inflows, output and the most effective use of assets, the situation and the solvency of the business Analysis of financial statements must provide information about equity sources, debts, results of operations,production and business, events and situations that change capital sources and other debt of the business.
DOCUMENT USED TO ANALYZE THE FINANCIAL
1.2.1 Report the financial situation ( Balance sheets )
A report the financial situation is an aggregate financial report that generally reflects the financial status of a business at a given time That time is usually the last day of the month, the end of a quarter and the end of the year.
Using the report the financial situation to analyze the financial structure of the business should also consider the market price fluctuations or not? (Due to economic inflation or low corporate value due to ineffective business reasons) Because the financial statements represent the original price, the analyst needs to adjust the current price when building analytical indicators to be able to assess the financial situation of the business.
According to the current accounting reporting regime, the structure of the Financial Information Report is divided into 2 divisions: assets and capital sources And designed in side or 2 side style.
Reflects the entire value of existing assets of the enterprise at the reporting time according to the asset structure and the form of existence in the business process of the enterprise.
Assets are sorted according to their ability to convert to money in descending order or by length of time to convert them into money.
Reflects all existing asset creation sources in the enterprise at the time of reporting.
The types of capital are arranged according to the firm's responsibility to use the capital with respect to creditors and owners.
Report the financial situation position with economic and legal significance.
Asset-share metrics allow the analyst to make a general assessment of the size and structure of a firm's assets.
The capital source data reflects the financial resources of the business, thereby assessing the financial situation of the business.
The assets share data shows the value of existing assets that the enterprise has the right to manage and use for a long time to make a profit.
The capital share data shows the scope of responsibilities and obligations of the business in terms of total business capital with creditors and owners.
1.2.2 Report the results of activities ( Income statement )
Income statement is a general financial report, generally reflecting the business situation and results in a period (quarter, year) of the enterprise's operation and details for the main business activities In other words, the business performance report is a means of presenting the life and the current status of the business, the performance of its obligations to the state on taxes and other payables.
The income statement provides information on the revenue, expenses and profit in a period of a business operation Based on the business results report, interested subjects can evaluate the results and performance after each period, on that basis, forecasts about the future of the business.
Income statement helps interested subjects clearly identify the basic relationships in business activities, thereby reporting the profits as well as future cash flows of the business To stand and thrive in business, a business needs to generate enough money to purchase new assets as well as replace old ones to maintain and expand its operational capacity, in which Profits are an important factor in the overall financial picture and a major source of money for businesses.
In addition, the income statement also helps interested objects in assessing the level of contributions to the society of a business, a profitable enterprise means that the enterprise has used effectively social resources (social forces) and the input materials of the production and business process).
Cash flow statement is a general financial statement reflecting the formation and use of the amount of money arising in the reporting period of an enterprise It provides information about the cash flow in and out of the business in a certain period, to promptly respond to debts to creditors, to pay dividends to shareholders or to pay taxes to the State In addition, the cash flow statement is the basis for predicting cash outflows in the future, helping managers in planning and controlling the operations of the business, and can evaluate business opportunity to make timely decisions, set a minimum contingency budget for the business to ensure its solvency.
Cash flow statements reflect the cash flow of revenues and expenditures during a period of operation of the enterprise Along with the financial status report and the report on business results, the cash flow report creates a big picture of the financial situation of the business.
The cash flow report lets competitors know where the business is making money and for what purpose On that basis, the cash flow statement will help the users to evaluate the ability to pay debts and pay dividends in the future of the business.
Cash flow statements provide additional information on performance in the current period and forecasts about the future prospects of a firm, but sometimes reports on business results of firms that report losses Incurring large and insufficient cash expenses, such as depreciation of fixed assets, provision for liabilities, showing the company's gloomy financial situation, cash flow statement will be the source Provide useful information to assess a business's ability to fulfill its obligations to credit providers, customers, employees and investors in the near future.
Notes to the financial statements are an integral part of the corporate financial statements used to describe the narrative or detail the data presented in the analysis financial statements, reports on business results, reports on cash flows as well as other necessary information as required by specific accounting standards.
The explanatory table of the financial statements together can present other information to the enterprise that deems necessary for the fair and reasonable presentation of the financial statements.
Notes to the financial statements must be presented in a systematic manner Enterprises are allowed to actively arrange ordinal numbers on the notes to the financial statements to suit the characteristics of the enterprises according to the principle of each item in financial situation analysis, reporting on business results and reports Cash flow statements and statements should be marked with the relevant information on the notes to the financial statements.
METHOD OF USING ANALYSIS OF CORPORATE FINANCIAL
Comparison is a widely used and popular method in economic analysis in general and financial analysis in particular The purpose of comparison is to clarify the differences or unique characteristics of the research object; from there, it helps interested objects have grounds to make decisions to choose.
♦ Standard of comparison (Original number)
Comparative standard is an indicator of a period selected as a basis for comparison, that standard can be:
Document of the previous year (previous period), aimed at evaluating the development trend of the indicators Expected targets (plan, cost estimate, norm), to evaluate the performance against the plan, estimate, norm.
The targets of the period compared with the original period are called the performance targets and the results that the enterprise achieved.
For the comparison to be meaningful, the prerequisite condition that the criteria used must be consistent In practice, often the comparable terms held
- In terms of time: are the targets calculated in the same period of time accounting must be consistent on the following 3 fronts:
+ Must reflect the economic content together
+ Must have the same analytical method
+ Must be the same unit of measure
- In terms of space: Indicators need to be converted to the same scale and business conditions are similar.
However, in reality, few indicators are homogenous To guarantee the consensus needs to be considered in terms of acceptable level of uniformity, the precision required, the time allowed for analysis.
The basic comparison techniques are:
- Comparison by absolute number: is the difference between the value of the comparison analysis period with the base period of the economic indicators, the results of comparison indicate the increasing and decreasing volume of economic phenomena.
- Comparison by relative numbers: is the quotient between the value of the comparison analysis period with the base period of economic indicators, results of comparison manifest the structure, relationship, growth rate, prevalence of economic phenomena.
- Comparison by means of average: Average number is a special form of great number quantity, in order to reflect the general characteristics of a unit, part or general, having the same property.
- Compare the level of relative variable adjusted according to the regulated scale adjust the coefficients of relevant criteria in the direction of deciding general scale.
Relative Analytical period Original period
Adjustment volatility = index - target x factor
Depending on the purpose and requirements of the analysis, the nature and content of the analysis of economic indicators that allow people to use appropriate comparison techniques.
The technical analysis process of the comparison method has performed in 3 forms:
- Vertical comparison: is the process of comparing to determine the relationship ratio the correlation between the periodic indicators of the accounting - financial reports, it is also called vertical analysis (same column of the report).
- Horizontal comparison: is the process of comparing to determine the ratio and the trend of fluctuations in the financial accounting reporting periods, it is also called horizontal analysis (same row on the report).
- Compare, determine the trend and the relevance of the indicators: the criteria the individual or the aggregate indicators on the report are viewed in relation to the indicators reflecting the general size and they can be reviewed over a period of time (3 to 5 years or longer) to make it clear development trend of research phenomenon.
The above forms of using the above comparison technique are often analyzed in the analysis of financial statements - accounting, especially the income statement, the financial statement and the cash flow table periodic financial statements of the business.
Exclusion method is used to determine the trend and influence level of each factor on the analytical criteria According to this method, when studying the effects of a certain factor, it is necessary to exclude the effects of the other factors.
The elimination method is used in the analysis under two ways: the consensus substitution method and the difference number method:
1.1.1.11The method of continuous substitution
Continuous substitution is a method of replacing each factor from its original value to the analysis period in turn to determine the influence of that factor on the research criteria Elements that are not yet replaced must remain in the original period Then, compare the value of the research indicator just calculated with the value of the study before replacing the factors The difference in value of the study after and before the replacement of the main factor is the effect of that factor on the variation of the indicator.
To apply the continuous replacement method, it is necessary to ensure the following conditions and presentation:
- Determine the indicators that reflect the subjects addicted to research.
- Determine the factors affecting the indicators that reflect the research object.
- These factors must be closely related to the indicators that reflect the research object in the form of a product or quotient.
- Arrange the factors affecting the indicators that reflect the research object research into a mathematical formula in the factor order from quantity to quality.
Replace in turn the value of each factor that affects the research criteria assist How many factors have so many times and which factor has been replaced, keep the replaced value (analysis period) until the last replacement. After each replacement of the value of each factor, it is necessary to determine the degree of influence of the replaced factor on the variation of indicators reflecting the object (if any).
Synthesizing the effects of the factors on the variation of research indicators between the analysis period and the base period.
With the above assumptions and symbols, it is possible to generalize the general model of the continuous substitution method to determine the influence of each factor on the analytical criteria as follows:
♦ Case 1: The factors have product relations
Suppose 3 factors a, b, c, all have product relations with the criterion Q. Call Q1 as the criterion analysis Q0 is the target of the base period The relationship between factors and Q indicator is established as follows:
Therefore, we have object of analysis: : Q1 – Q0 = ∆Q
The degree of factor influence on Q:
-Effect of factor a:(∆Qa): ∆Qa = a1 x b0 x c0 - a0 x b0 x c0
-Effect of factor b (∆Qb): ∆Qb = a1 x b1 x c0 - a1 x b0 x c0
-Effect of factor c (∆Qc) : ∆Qc = a1 x b1 x c1 - a1 x b1 x c0
On the basis of determining the influence and the impact level of each factor, it is necessary to draw conclusions and recommend practical solutions.
♦ Case 2: The related factors are expressed in the form of both the product and the quotient
ANALYZE THE ASSET STRUCTURE OF THE BUSINESS
1.4.1 An overview of the analysis of the company's asset structure
Asset structure analysis is the determination of the structure and variation of each type of asset in the total assets of an enterprise The purpose of asset structure analysis is to evaluate the characteristics of an enterprise's asset structure, the reasonableness of capital investment in business activities and to see fluctuations in business size, energy business force of the business.
When analyzing the asset structure to consider: Is the company's asset structure reasonable or not? How does that asset structure impact the business process? It is necessary to pay attention to the nature and industry of the business, consider the impact of each type of assets on the business process and the business performance that the enterprise achieved in the period.
The impact of each type of assets on the business process and financial policies of the enterprise in the organization of capital mobilization:
The volatility of cash and cash equivalents, and short-term financial investments affect the ability to cope with maturing debts.
Fluctuation of inventories is greatly influenced by production and business processes from production storage to sales.
The fluctuation of the accounts receivable is influenced by the corporate payment and credit policy towards customers That greatly affects the management and use of capital.
The volatility of fixed assets indicates the size and available production capacity of the firm.
1.4.2 Analyze from different types of business assets
The analysis of the basic indicators showing the asset structure is to capture the capital use situation as well as characteristics of the capital investment of the business.
To determine the asset structure of the business, it can be set up by the following formula:
(Ki) = Net worth of Assets i x 100%
The above ratio reflects the percentage of asset type i in total assets of the enterprise.
Net value of asset i mentioned in the numeric element is net value, residual value of asset i Asset i in the above formula refers to the items of assets such as cash and cash equivalents, financial investments, receivables, dry inventories, fixed assets,
Total asset value is the total amount of assets on the statement of financial position.
Proportion of cash and cash equivalents ( K 1) Proportion of cash and cash equivalents x 100%
- The value of money is taken from code 110 on the Report the financial situation.
- Total asset value is derived from code 270 on the Report the financial situation.
- Cash and cash equivalents include: cash at the fund, bank deposits, money in transit, precious stones and metals
Meaning: Indicate in the total assets of the business, the percentage of money and cash equivalents.
- If K 1 is large: It can be seen that the enterprise has many advantages in paying due debts as well as being able to meet the needs of production and business in a timely manner, inter-company and investors or owners Debt also has a better view of the business However, if this rate is too high and maintained for a long time, often, it shows that the capital in cash of the business is much idle, which is not mobilized in the production and business process, leading to low efficiency of capital use.
- If K 1 is small: Causing great difficulties to the business production process of the enterprise, even if it does not ensure that the business process of the business is carried out continuously, the enterprise will lose business opportunities need to use cash quickly and businesses also have difficulty in paying off due debts Investors and creditors do not like this low in the firm. This leads to inefficient use of business capital.
Therefore, the reasonable and moderate distribution of K1 is a necessary condition in enterprises This depends on the size and depending on the type of business of the business In addition, this also depends on the management ability of the business.
Proportion of financial investments ( K 2) Value of financial revenues
- Net value of financial investments is taken from code 120 and code
250 on the Report the financial situation.
- This index represents the ratio between financial investments (including short-term financial investments and long-term financial investments) with the total assets of the enterprise.
Meaning: In the total assets of the business, how many percent of financial investments account for.
- If K 2 is large: Shows the level and intensity of high focus on financial relationships and links between businesses and other businesses, creating opportunities and conditions for growth from outside activities The business has the ability to seek high profits outside of its core business However, when this indicator is high, it means that business risks will be high.
- If K 2 is small: businesses are less likely to seek more sources of profit apart from focusing on their main business This may be the direction of the business owner.
Therefore, the amount of idle capital used to invest financially in the business must be reasonable Because it shows the size of the business operation, at the same time is also a great source of profits for the business.
- Net inventory value is taken from code 140 on the Report the financial situation.
- Accounts receivable include: accounts receivable from customers, prepayments to suppliers, internal receivables, receivables according to construction contract planning team, other receivables
Meaning: In the total assets of the business, how many percent of accounts receivable accounts for.
- If K 3 is large: Receivables of the enterprise are large This shows the consumption of products by large enterprises, but the ability of enterprises to recover debts is slow or the ability to manage debts of enterprises is not good. Therefore, with this situation, the capital of the business will be occupied for a long time, affecting the ability of the business to return capital.
- If K 3 is small: Receivables of the enterprise are low, this shows that debt collection and debt management of the enterprise is well done Therefore, the ability of enterprises to turn around capital quickly helps them to do business better.
Of the accounts receivable, the customer accounts receivable is a very important one Receivables from customers are part of the business's assets arising from the sale of its goods and services to customers Therefore, when analyzing, it is necessary to determine the following ratio of accounts receivable from customers:
Proportion of customer receivables Value of customer receivables x 100%
Total Assets For the retail businesses that collect money immediately, the proportion of accounts receivable from customers accounts for a low proportion and vice versa, for the wholesale businesses, the proportion of accounts receivable from customers accounts for a large proportion.
For businesses that apply long credit terms with high credit balance for customers, accounts receivable from customers account for a large proportion, because sales credit is a measure to stimulate consumption, so In order to evaluate the accuracy and reasonableness of this indicator, it is necessary to put it in the relationship with the sales and consumption of the business.
Proportion of inventories ( K 4) = Inventory value x 100%
- Net inventory value is derived from code 140 on the Report the financial situation.
- Inventory includes all kinds of reserves for production and business in enterprises such as: raw materials, tools, tools, finished products, goods, work in progress
Meaning: Indicate how many percent of the total assets of the enterprise are inventories.
- If K 4 is large: The enterprise has a lot of inventory Enterprises can easily promptly respond to the needs of production and business processes.However, the large reserve will cause capital stagnation of the business, on the other hand, the cost of preserving and storing large inventories will be very expensive Therefore, the efficiency in using capital of enterprises will be very low.
- If K 4 is small: A reasonable amount of inventory with a sufficient quantity and the lowest cost for storage Therefore, it will affect the production rate and consumption of the company's products.
Proportion of fixed assets ( K 5) Residual value of fixed assets x 100%
- Net book value of fixed assets is derived from code 220 on the Report the financial situation.
Meaning: Indicate how many percent of assets are fixed assets.
- If K 5 is large: proving that the more technical facilities of the enterprise are strengthened, the more business production capacity of the enterprise will be expanded, the longer the long-term development trend of the enterprise will be steadily.
ANALYZING THE CAPITAL STRUCTURE OF THE BUSINESS
Capital sources of the business in terms of the source of assets are basically composed of two large parts; source of debt and equity source. Legally, the nature of these two sources of capital is completely different in terms of responsibility for the capital contributor itself.
♦ For debt capital (Liabilities): the enterprise must commit to pay creditors the principal amount and the cost of capital (if any) according to the prescribed time limit When there is a risk of bankruptcy or liquidation requiring liquidation, creditors have the priority to make payments from the liquidated assets.
♦ For Owner’s Equity : Enterprises do not have to make payment commitments to capital contributors as owners Equity represents the owner's sponsorship for all assets in the enterprise.
When analyzing the financial autonomy (financing capacity) of the business, we go into the classification of capital sources into equity sources and liabilities Through that we go into determining the criteria:
- The debit value must be taken from code 300 including codes 310 and
330 on the Image resource itself of the Report Sheet
Meaning: Indicates that of the total capital of the business, liabilities are calculated as a percentage
- If P 1 is large: Demonstrates the financial independence of a large enterprise, the enterprise can meet the capital needs for all production and business activities, the financial risk of the business will decrease.
- If P 1 is small: Business is not pressured in the payment process as well as having structural profit for investors The business has attractive conditions for investors, so the capital raised in the future will be used.
- The value of Owner’s equity is taken in code 400, including codes
410 and 310 on the Report the financial situation.
Meaning: Indicate how many percent of the total capital of the business is owner’s equity.
- If P 2 is large: The owner’s equity of the large business The business is financially independent and is not under pressure from creditors Therefore, businesses easily attract investors to continue developing their business.
- If P 2 is small: Owner’s equity of a small business, at the same time the business has large liabilities This situation of the business will not create insecurity for investors when deciding to invest.
Liabilities to equity ratio ( P 3) Liabilities debt x 100%
Meaning: Indicates the level of debt guarantee by owner’s equity in the business.
- If P 3 is large: The degree of guaranteeing liabilities due to unsafe owner’s equity Businesses will be frozen and most likely will not receive outside credit funding.
- If P 3 is small: Liabilities are fully covered by owner’s equity.
Enterprises can continue to increase their debt to develop business to the extent permitted, and in this case it is also easier to find external credit.
1.5.2 Analyze the financial stability of business
Financial autonomy analysis only shows the relationship between debt and owner’s equity However, in the financial management, business is interested in the term of use of each type of capital, the stability of the source and the cost of using that source Capital stability is a concern when using a certain amount of funding According to the use term, the enterprise's capital source is divided into: Regular capital source and Temporary capital source.
♦ Regular capital: is the capital used by the enterprise for a long time, stable in production and business activities, with a use time of more than one year According to this classification, regular capital sources at a time include: Owner’s equity capital and Medium and long term loans.
♦ Temporary capital: A source of capital that the enterprise temporarily uses in production and business activities for a short period of time, usually a business cycle or a year According to this classification, the temporary sources of capital at a time include: temporary payables, credit debts to sellers, debts now short-term banks.
To conduct a funding stability analysis, the following basic indicators are often used:
Proportion of provisional capital = Temporary capital x 100% Total Capital
- The value of the provisional funding source is given in code 300 on the Report the financial situation.
Meaning: Indicate how many percent of the total capital of the enterprise is of the temporary nature.
- If P 4 is large: the company has due debts that need to be repaid.
Therefore, the funding stability of the whole business is very low
- If P 4 is small: Capital in businesses is mostly regular capital.
Therefore, businesses will not be pressured to pay debts in the near future and the financial stability of the business is relatively stable over a long period of time.
Rate of regular capital Regular capital x 100%
- The value of regular capital is taken from code 400, code 330 and code 310 with short-term debts with a term of more than one year on the
Meaning: This indicator reflects the total capital of the enterprise, how many percent of regular capital.
- If P 5 is large: Regular capital is the opposite of temporary capital, so the high ratio of regular capital also means small rate of temporary capital. Then the stability of the funding source is high in a certain time.
- If P 5 is small: This means the rate of regular capital is large Thus, the stability of funding sources in enterprises is low.
1.1.1.24The ratio of equity to recurrent capital ( P 6 )
The ratio of equity to recurrent capital ( P 6) = Owner’s Equity
Meaning: Indicate how many percent of recurrent capital is owner’s equity.
- If P 6 is large: Owner’s equity is large This is the own capital of the business So the business has high financial autonomy On the other hand, when the capital source is large, it proves that the long-term debts in the business are not much Stability of funding sources in businesses is prudent in a certain period of time.
- If P 6 is small: Owner’s equity is small Capital resources in the business are mostly long-term loans Therefore, businesses have low autonomy, and businesses also have to worry about long-term debts, so the stability of their funding sources is also low Business is at risk of financial imbalance in the long term.
In summary, by the indicators reflecting the autonomy and stability of the volumetric source, the analysis of the capital structure has many meanings in the decision-making of the following subjects:
♦ For sponsors and investors: Analysis of capital structure contributes to ensuring the credit for the business needs and minimizing the risks arising from the enterprise's insolvency.
♦ For business managers: Enterprises can estimate their debt capacity to decide which form of capital mobilization is reasonable (borrowing or increasing capital contribution) through the comparison of interproportion ratios through to corporate debt with bank limits From there, businesses will build a reasonable capital structure, minimizing the cost of capital,maximizing the value of the business.
FINANCIAL BALANCE ANALYSIS
1.6.1 An overview of corporate financial balance
Financial balance is the balance between elements of assets with elements of funding sources Financial balance analysis is the comparison between asset factors with capital factors and when conducting the analysis, based on the time of use, they can be divided into two parts as follows:
♦ Factors of a long-term nature: we make a comparison between long-term assets with regular capital.
♦ Factors of a short term nature: we compare short-term assets with temporary capital.
Financial balance is shown in 3 contents:
♦ Balance regular capital with long-term assets: this is the long-term balance.
♦ Balance between temporary capital and long-term assets : (excluding cash, short-term financial investments), this is the short-term financial balance,which balances the need to finance the business and temporary funding.
♦ Balance between net working capital and net working capital requirement: The difference between these two factors represents the cash balance and short-term financial investments that come from the business or these are derived from the short-term loans to compensate for the shortfall in net working capital requirements.
1.6.2 Analyzing financial balance in the business
1.1.1.25Long-term financial balance analysis a Concept
Net working capital is the difference between regular capital and long-term assets In other words, net working capital is part of the stable capital used to finance short-term assets
Balance sheets can be divided into groups:
Short-term assets Temporary capital
Long-term assets Regular capital
Owner’s Equity b Net working capital method
Net working capital can be determined by two methods:
♦ Method 1: Net working capital is the difference between regular capital resources and long-term assets.
Net working capital(net working capital)
= Short term account - Regular capital
Shows how net working capital is used: Net working capital is amortized over receivables, inventories or high payables This relationship analysis demonstrates the solvency of the business Especially:
- Net working capital > 0: Long-term financial balance is assessed well, regular capital is sufficient to finance short-term assets, in this case regular capital