Ministry of education of Ukraine National university "Lviv polytechnic" Department of accounting and analysis Calculation and graphic work on the course: Business analysis Performed by: stud.of gr. OA-33 Examined by: Z. Skybinska Lviv-2014 INTRODUCTION Analysis of business enterprises - a comprehensive study of the status and development of business enterprises (firms, companies, etc.) in conjunction with its technical level and social development team for evaluation of given parameters, identify farm reserves and increase production efficiency. The quality of the analysis provided by applicable techniques and methods, completeness and reliability of the information, qualifications artist. In modern conditions any specialist that is relevant to the organization and management of the business, must have a certain analytical tools, know and understand the logic of analytical procedures. The aim of this work is to improve the design level of theoretical knowledge of the subject "Business analysis" tools and methodology of analysis, improving technology preconceived conclusions of the analysis, development of the ability of perception of economic processes and phenomena occurring in the enterprise, and their relationship interdependence. Objectives: 1. The acquisition of theoretical knowledge to analyze cash flows by indirect method; 2. Survey of business enterprises in the following areas: the analysis of non-current assets, analyze the effectiveness of labor and material resources, the overall assessment of the financial situation, the analysis of financial stability, liquidity, solvency, business activity and profitability of its operations. This work consists of an introduction, theoretical part of the calculation and analysis, conclusions, list of references and appendices. The source of information for performing calculation and graphical work is the financial statements PJSC « Lviv Confectionery Factory Svitoch" for 2012 and 2013. Section I. Theoretical part Analysis of composition, structure and dynamics of the property (assets) of the company The capital structure for a company is dependent on the proportion of debt and equity used by the company to finance the operations of a business. The company management is responsible for the tactical choice regarding the determination of the capital structure that is optimal for the company; this is often based on an analysis of the direct and indirect costs associated with the various sources of finance used by the business. Harris and Raviv (1991) suggest that every single company determines a unique capital structure based on the distinct costs and benefits associated with using particular form of financing and the ability of a company to raise either equity or debt with relative ease.  The optimal capital structure for a company is examined in the light of the factors that impact on a certain company in its internal and external business environment. It is also suggested that the choice of a capital structure is indeterminate and a particular combination of debt and equity that is most suitable in the current environment might not be the optimal capital structure as the business environment alters over the passage of time; therefore, this decision is dynamic and needs to be taken in the context of the recent changes in the business environment. The decision to raise additional financing in the form of debt or equity is a marginal choice and a firm's management has to make this decision based on the costs associated with additional debt and equity instead of the costs associated with the overall debt or equity issued by the company; this implies that the choice for capital structure is marginal. Similarly, over the passage of time as the business dynamic alter the business might be required to tilt its capital structure policy based on the recent changes . The earlier research on the determinants of the capital structure decision by firms has identified certain factors that are considered to have a noteworthy impact on the choice of the capital structure adopted by a firm. The recommended factors may gain or lose important over the passage of time as the risks associated with holding debt and equity alter. The literature from around the world has aimed at determining the factors that may impact the choice of capital structure based on the unique factors associated with the national economic environment and this study will have a special emphasis on the capital structure choice of firms in the UK. However, it is important to note that several studies in the past have identified certain factors that are common to the determination of the capital structure throughout the globe . The analysis of the composition of assets can be made more effective, if the indicators defined on the basis of the balance sheet data of the previous years are also included in the analysis. Apart from a comparison in time, the composition of the structure of assets can also be compared to the data of another company, or perhaps to average sectoral data (geographic comparison) providing that comparison is clearly feasible, because the composition of the assets is fundamentally determined by the activities of the company. It is an important aspect in the analysis that the structure of assets is fundamentally determined by the nature of the activity. There are significant differences between manufacturing, trading or service companies in terms of the distribution of assets. Property, Plant and Equipment Assets (PP&E assets) and perhaps other capital items include such things as buildings, factory machinery, office furniture, large computer systems, and vehicles. These assets may be chosen and acquired through a competitive capital review process, with an emphasis on what the asset contributes towards meeting business objectives and operational needs, the expected economic life of the asset, and total cost of ownership. These assets are usually subject to depreciation, which lowers asset book value over its depreciable life, creating a tax savings by lowering reported income. Traditional asset life-cycle management techniques are applicable primarily to assets in this category.  For companies in capital-asset-intensive industries (such as construction, transportation, and heavy manufacturing), PP&E assets may represent well over 50% of the asset base. For companies in other industries (eg, insurance, software development, or financial services) PP&E assets may represent a far smaller percentage of the asset base, consisting of little more than office furniture and computer systems. Current assets provide the company's liquidity. Current assets are either cash itself, or items that are at least in principle readily converted into cash. As the pie chart at left (in blue) shows, the three major current assets components are cash, inventories, and accounts receivable. Liquidity metrics such as working capital or the current ratio, in fact, are based on the company's reported totals in these current assets categories. Each of these three current assets categories, moreover, is managed, and controlled with its own methodology. Cash on hand is necessary for meeting immediate expense needs, including paying employee salaries, day-to-day operating expenses, and other short term obligations. Sufifcient cash on hand also makes possible a quick response to changing market conditions or competitors actions, and investment in such things as product development and infrastructure upgrades. A cash shortage can prevent these kinds of investments. A cash shortage also puts the company at risk of defaulting on loan payments due, or even meeting payroll.  Clearly, a first priority for management should be maintaining sufficient cash assets without accumulating a large cash surplus. A cash surplus is undesirable because cash sitting idle in an asset account is not earning interest or otherwise working productively. As mentioned, cash is a major component of liquidity metrics including working capital and the current ratio. Inventories are obviously necessary for meeting production needs and customer needs. In manufacturing companies, inventory categories typically include raw material inventories, work in progress inventories, and finished goods inventories.A retail business, on the other hand, may have only merchandise inventories inventories, waiting for sale to customers. In any case, acquiring, handling, and holding inventories can bring significantcosts.  Inventory management is the art of maintaining enough inventory to meet customer and production needs, while keeping inventory size and the time inventories are held to an absolute minimum. When these objectives are achieved, the company's scores on activity and efficiency metrics such as inventory turns and days sales in inventory improve.The opposite results occur when excess inventory sits idle.  Accounts receivable are monies owed to a company for goods or services sold and delivered but not yet paid for by the customer. The only companies in business that would not have accounts receivable are the rare companies that sell exclusively on a "cash only" basis to all customers. Accounts receivable are legitimately classed as current assets because they are expected to be converted to cash in the near term, typically within 30 days or less.  The challenge for management with accounts receivable is to prevent accounts due from slipping beyond the stated due period or, worse, having to be written offas bad debt. In fact most companies expect that a small percentage of their accounts receivable will never be collected and in the interest of accurate financial reporting they recognize this reality by carrying an account called "allowance for doubtful accounts " . The company's ability to manage accounts receivable effectively is measured with activity and efficiency metrics such as accounts receivable turnover, and days sales outstanding. Improvements in these metrics raise overall company ROA. Many companies own shares of stock in other companies and/orbonds (debt) issued by other companies or government organizations. These assets and other kinds of securities can provide an alternate, or supplemental source of income even for companies that are not in the investment industry. There is in fact an income statement category for reporting revenues and expenses from these investments, separate from the revenue and expense items for the company's normal line of business. These Long term investments and funds assets can (or should) produce income simply as a consequence of ownership. Financial income from long term investments and funds, as well as their balance sheet values of course contribute to overall company ROA. When long term funds and investments are bought, held, traded for the purpose of bringing income, the portfolio of these assets can be managed and optimized using traditional techniques of portfolio management. However, it should be noted that another purpose for owning securities issued by another company is to exercise control over the management and operation of that company. When company A owns 50% more of Company B's voting stock, Company A is said to have an active majority interest in Company B. In such cases A (called the parent company) can literally control B (the subsidiary) by choosing its Board of Directors and by getting its desired outcome for every issue that is put to shareholder vote. A company can still exercise a strong measure of control over another company by taking an active minority interest (which usually means owning 20% - 50% of the other company's voting stock). Active minority owners exercise control by persuading enough other shareholders to vote with them to make a majority block. In any case, when one company owns another company's voting stock, and when the purpose is control, the "returns" from the investment go beyond the normal investor returns of dividends and share price increase. The benefits from assets that provide control of another company do not factor directly into the ROA calculation.  Intangible assets include such things as intellectual property (proprietary knowledge, formulas, or trade secrets), and copyrights, trademarks, and patents. These are legal intangibles, meaning they are defensible in courts of law. However, the "intangible assets" also includes so-called competitive intangibles generally not defensible in court such as company reputation and brand recognition. Both legal and competitive intangibles legitimately qualify as assets because they are acquired at a measurable cost and they have value for the business. The returns or financial gains from individual intangible assets is usually not so easily measured as is the gain from other assets, such as long term investments—unless the intangible asset is sold to another company. The contributions of intangible assets to the "Returns" in ROA are primarily long term and indirect: intangible assets may improve the company's ability to compete effectively in the market, to deliver unique products or services, or to charge higher prices (and receive higher margins) because of brand strength.  The analysis of the non-current assets begins with the study of the dynamics of total and individual types. The summary of the first section indicates the amount of non-current assets which are used in household activity. The reduction of total cost of non-current assets for the period under review may indicate reduction of household activity of enterprise, so it’s important to determine its possible reasons. Analysis of the structure of non-current assets and its changes plays a special role in the analysis of non-current assets ensuring of the enterprise. A large proportion of fixed assets and unfinished construction as a part of non-current assets, as well as a large proportion of their growth in changing the total value of non-current assets for the period under review, characterizes the enterprise’s orientation on creating the material conditions for the expansion of its main activity. In the analysis of non-current assets are paying attention to the presence of intangible assets and the change of their value during the period. We also look at changes in the cost and the proportion of fixed assets, as well as its causes. Pay attention to the fixed assets of the organization that are purchased , sold, liquidated or leased to during the reporting period. Availability of long-term financial investments indicates the investment orientation of organization. Increase of the proportion of current assets in the assets of the organization may indicate a more mobile asset structure to accelerate the turnover means of the organization; distraction of current assets on consumer lending products and services of the organization, subsidiaries and other debtors showing the actual immobilization of this part of the current assets from the production cycle; minimization of production base etc. In order to make definite conclusions about the causes of such changes in the proportion of the assets, conduct a detailed analysis of individual components of current assets. For example, significant increase of leftovers on reserves and expenses items are not always a sign of increased production, but may be the result of slower turnover of these assets. In the analysis accounts receivable must pay attention to its growth rates. An indication of unsatisfactory performance of the organization is the existence of overdue receivables. Considering that in the new form of the balance not provided articles showing the overdue debts should further analyze debts on each debtor and only then to draw the appropriate conclusion . Asset Dynamics is a cloud-based cash flow projection software platform for commercial real estate. It is particularly designed for office, industrial and retail properties that are subject to highly variable lease rollovers and cash flow. Section II. Calculation part Description of economic activity of enterprise Lviv Confectionery Factory` Svitoch `was founded on May 10, 1962 in order to concentrate production of three confectionery factories by uniting them in the production company `Svitoch`. In the few first years of united enterprises existence technical equipment were updated and a assortment of products become wider. In 1998, Nestlé S.A. purchased block of `Lviv Confectionery Factory `Svitoch` shares. In few last years `Svitoch` occupied about 10% of confectionery market in Ukraine. The main types of `Lviv Confectionery Factory` Svitoch `economic activities are manufacturing of cocoa, chocolate and sugar confectionery. Analysis of non-current assets of the company Analysis of non-current assets begins with the study of the dynamics of their total and individual species. Summary of the first section indicates the asset balance by the amount of non-current assets, which it uses in business. In analyzing reveal types of non-current assets, from which there was a change of their total. Analysis of the dynamics and structure of fixed assets is provided in analytical table (Table 1): Table 1 Dynamics, composition and structure of non-current assets Continued Table1. A large proportion of fixed assets as part of non-current assets (89.804%).But its share has decreased compared with the previous year (-1.72), which is negative for the enterprise.This probably will decrease the income of enterprise. The proportion of unfinished construction is much increased (2.38%). Rate of depreciation and coefficient of suitability two main indicators that evaluated the appropriate technical condition of fixed assets. Rate of depreciation shows the proportion of fixed assets value transferred to finished goods. Coefficient of suitability - an indicator opposite to the rate of depreciation. It shows the proportion of fixed assets suitable for use in the course of economic activity. Analysis of fixed assets is provided in analytical table (Table 2): Table 2 Dynamics of indicators of technical state of fixed assets As we see, coefficient of suitability is t higher han the rate of depreciation. It means that the quality (technical) state of fixed assets is good, but compared to the previous year, a situation worsened. The level of depreciation of fixed assets is 55%, because rate of depreciation that has increased by 4% and coefficient of suitability decreased by 4% . To the indicators of movement of fixed assets refer absolute indicators of receipt, disposal of fixed assets for the period under review, coefficients of disposal, renewal and growth of fixed assets. Analysis of movement of fixed assets is provided in analytical table (Table 3): Table 3 Dynamics of indicators of movement of fixed assets Annual volume of proceeds of fixed assets decreased in the present year compared to the previous (-82298). There wasn’t a disposal of fixed assets. Renewal rate of fixed assets is very low (0.05). It means that there were not introduced new fixed assets in the production process. Effectiveness of fixed assets using is measured at the system physical and value indicators, basic among which are yield of capital investments and stock-capacity. Yield of capital investments - an indicator that characterizes the amount of output (or the volume of sales) per monetary unit of industrial fixed assets of the company. Stock-capacity is inverse yield of capital investments index, it characterizes the average value of industrial fixed assets per unit of output (or volume of sales). Analysis of the efficiency of fixed assets is provided in analytical table (Table 4): Table 4 Dynamics of indicators of the efficiency of fixed assets Continued Table 4. Analyzing the data table we see, that the scope of production decreased in reporting year (-10523). The yield of capital investments of fixed assets is decreased compared with the previous period (-14.62%). It has negative effect on efficiency of production. Stock-capacity of fixed assets has the negative impact on production to, but in a lesser volume, because it grows not on high level (+17.13%). It's necessary to use fixed assets more efficiency to improving the scope of production 3. Analysis of efficiency of use of labor resources of enterprise The result of the production process depends on the level of labor productivity, ie the effectiveness of specific labor inputs, which is determined by volume of products produced per unit of time or the amount of time spent on manufactured unit. To analize it we must define the average annual production per worker and the average daily production output by one worker. Analysis of the labor productivity is provided in analytical table (Table 5): Table 5 Dynamics of indicators of labor productivity The average annual production output per worker is decreased( -1.06). It is a bed change because it means that the same number of workers produce less in reporting year. 4. Analysis of the material resources of the enterprise The most important indicators that characterize intensity of consumption of inventory is turnover ratio, coefficient of consolidation and the duration of one turnover. Analysis of the material resources of the enterprise provided in analytical table (Table 6): Table 6 Dynamics of inventory turnover Increment of turnover ratio of inventory (2.714) characterizes the relative decrease in inventories, which positive affect the financial condition of the company. Increasing of coefficient of consolidation of inventory (-0.026) has also a positive effect on the activity of the company. Analysis of generalizing and partial performance indicators of making use of material resources. To characterize the efficiency of use of raw materials use a system of generalizing and partial indicators, the calculation of which is based on the index of material costs. Generalizing indicators include: material return and materials consumption. They evaluate the effectiveness of material resources usage by enterprise and its structural divisions. Analysis of efficiency of using material resources of the enterprise is provided in analytical table (Table 7): Table 7 Dynamics of indicators of efficiency of using material resources Material consumption of products increased in the reporting period on 0.061 due to lower material costs for production. Thisis a good thing. Material return of products comes in the reporting period by reducing the scope of production. 5. Overall assessment of the financial state of enterprise The analysis of the balance sheet total (the total value of assets) of an enterprise carry out by comparing the data on assets of the enterprise, which it owns, at the beginning and end of the reporting period. The overall assessment of the dynamics of the financial condition of the business conducted on the following parameters: Coefficient of change of balance sheet total (cbst) calculated by the formula: CBST= (458080-499988)/499988 = -0.08 Coefficient of income (revenue) volume change from the sale of products (goods and services) (ci) is calculated: CI = (989053-978530)/978530 = 0.011 The excess of rates of income (revenue) from the sale of products (goods and services) compared with growth rates of of balance sheet total (CBST < CI) indicates the improvement of property use, the more effective use of financial resources. Assessment of the dynamics, composition and structure of property of the enterprise is provided in analytical table (Table 8): Table 8 Dynamics and structure of property The largest share of the non-current assets occupy fixed assets (274301)at the beginning of the period and 268683 at the end), intangible assets - the smallest one (17) The structure of non-current assets at end of are increased (101.24%). Describing the dynamics of current assets, it is possible to observe a significant effect on the their increasing (+42431) the change in the value of receivables (+50529). The largest share of the current assets occupy receivables for goods, works, services.The volume of inventories increased compared with previous period (+50529). As a result current assets increased to (+42431). Table 9 Dynamics and structure of sources of property As we see, the volume of equity at the end of period increased (+29174) due to the increase of treasury stock. The most significant impact has an increase in retained earnings (+1819) and by the absence of retained earnings . All other parameters remained unchanged .Liabilities reduce the value of equity. Current liabilities at the end of the period increased (+15921). Considering the value of equity and liabilities we can see that the share of equity (69.6%) exceeds the share of debt (30.39%). 6. Analysis of the financial stability of an enterprise Based on the company's balance sheet is necessary to calculate indicators of available sources of forming stocks and determine the type of financial stability. As part of absolute indicators of financial stability mostly distinguish group of indicators of availability of sources of stocks’ formation and group of indicators of stocks’ coverage by sources of their formation. Analysis of indicators of financial stability of enterprise is provided in analytical table (Table 10): Table 10 The enterprise has normal short-term financial stabilyty at the beginning of the period and absolute financial stability at the end. Stocks of companies fully formed from its own sources - working capital (net working capital). The Company is not dependent on foreign creditors, has a high level of solvency. In practice it is extremely rare and is a limiting type of financial stability, and the approach to financing of inventories may not be the best, because it means that the company is unwilling or unable to raise finance loan. Assessment of the dynamics of basic relative indicators of financial stability of enterprises carry out using the values of capitalization ratios that is provided in analytical table (Table 11): Table 11 Dynamics of the main relative indicators of financial stability Coefficient of autonomy is exceeds0.5. Thus, all liabilities of the enterprise be covered by its own funds. Independent of the enterprise from external sources of financing is stable. Debt ratio shows that enterprise uses liabilities for financing assets almost on 21%. The high value of the coefficient of financial dependence shows that the company uses borrowed funds. The decrease of coefficient of financial dependence in dynamics suggests the decrease in the share of borrowed funds in enterprises financing, and hence decrease of its financial dependence on creditors and investors. The greater the value of the ratio of long-term financial independence, the higher the financial stability of the company and the smaller share of its current obligations that require continuous operational control over their timely return. The growth rate shows an increase of financial potential future development. The ratio of liabilities and equity shows the volume of liabilities accounted for every gryvna of own funds, invested in enterprise’s assets, and characterizes the level of company’s dependence on the involved funding. The ratio вo not exceeds 1.0, so most property is formed by own costs. 7. Analysis of liquidity and solvency Analysis of balance sheet liquidity consists in comparison of asset articles, grouped on the basis of liquidity and arranged in order of descending, with articles of liabilities, grouped on the basis of terms and placed in order of increasing obligations maturities. Analysis of balance sheet liquidity of enterprise is provided in analytical table (Table 12): Table 12 Analysis of balance sheet liquidity Balance sheet is not completely liquid, since no condition A1> L1 at the beginning and end of the reporting period. The condition A3> L3 for the enterprise performed, indicating a high level of solvency perspective, the existence of an enterprise of sufficient stocks, commodities and other assets that are implemented slowly.Condition A4> L4 is not fulfilled, indicating a lack of company equity, which is directed to the formation of current assets. Table 13 Dynamics of relative indicators of liquidity and solvency The analysis of the relative liquidity and solvency for the 2012-2013 Five years showed that at the beginning and at the end of the reporting period, the company has a very low level of liquidity. The trend towards reduction in the absolute liquidity is negative. Growth factors and critical current liquidity is also a bad thing for the company. 8. Analysis of business activity Analysis of the dynamics of general indicators of economic activity of enterprise carry out by the following general indicators: the amount of capital invested in the activities of the company (asset value), net income (revenew) from the sale of products (goods and services), net profit, comparing to the rate of change of these indicators for several periods. Analysis of the dynamics of general indicators of economic activity of enterprise is provided in analytical table (Table 14): Table 14 The dynamics of overall performance of economic activity Inequality Gra < 100% (68.06%) means that the economic potential of the company and the scale of activity is decreasing. Inequality Gri > Gra (98.94% > 68.06%) indicates that the growth rate of net income are higher than growth rate of economic potential, ie per every hryvnia of additional capital company receives more than one hryvnia return. Inequality Grp > Gri (109.3 % > 98.94 %) indicates that the growth rate of net profit exceeded growth of net income and economic growth potential. Evaluating the effectiveness of the use of enterprise resources is performed using the following key financial ratios: asset turnover ratio, turnover ratio of fixed assets, inventory turnover ratio, average length of turnover of receivables, turnover ratio of receivables, turnover ratio of payables, average length of turnover payables and others. Analysis of the dynamics indicators of business activity of enterprise is provided in analytical table (Table 15): Table 15 Dynamics of indicators of business activity As we see, almost all indicators have a negative meanings. It means that activity of enterprise is not very effective. Decreasing of turnover ratio of fixed assets reduсes net income (revenue) from the sale of products (goods and services) per unit of fixed assets value. Turnover ratio of receivables decreased, so turnover costs of the enterprise increased. 9. Analysis of profitability of the enterprise Analysis of the profit of the enterprise provides research of its level and dynamics, changes in each of profit (loss) indicators for the reporting period compared to the previous period. Information about the main types of company profits, as well as basic data for their calculation contains "Report on financial results". The analysis of different types of income of the company for the period under review is provided in table 16. Table 16 Level and dynamics of financial results The table shows that income (revenue) from sales of products (goods and services) is decreased (+4326 ths. UAH) and all expenses are increased in reporting year . This may be due to changes with the changes in sales volume, the structure of production, selling prices of products sold, prices of raw materials, fuel, electricity tariffs and transportation, the level of costs of material and labor resources. Company is not engaged in extraordinary activity. So there is no extraordinary income and expenses. The system of key indicators of profitability of products include: gross profitability, operating profitability ,net operating profitability. Indicators of profitability of capital characterize the relationship of profits and capital invested in the formation of enterprise assets in order to obtain those profits. The most important indicators of profitability of capital are: operating return on assets, net return on assets, net return on equity. Indicators of profitability for the period under review is provided in the table 17. The most important indicators of profitability of capital are: operating return on assets, net return on assets, net return on equity. Indicators of profitability for the period under review is provided in the table 17. Table 17 Level and dynamics of indicators of profitability Analysis of the level and dynamics of profitability for years 2012-2013, the profitability of the enterprise during the reporting period was lower than in the previous period. For all analyzed parameters except for gross profitability, there is a negative trend, but gross margin increased by 66. CONCLUSIONS In carrying out this calculation and graphic work was considered to analysis of composition, structure and dynamics of the property (assets) of the company. The optimal capital structure for a company is examined in the light of the factors that impact on a certain company in its internal and external business environment. It is also suggested that the choice of a capital structure is indeterminate and a particular combination of debt and equity that is most suitable in the current environment might not be the optimal capital structure as the business environment alters over the passage of time; therefore, this decision is dynamic and needs to be taken in the context of the recent changes in the business environment. Also in the research was carried out economic activities of the private joint-stock company “Svitoch” in the following areas: the analysis of non-current assets, analyze the effectiveness of labor and material resources, the overall assessment of the financial situation, the analysis of financial stability, liquidity, solvency, business activity and profitability of its operations. Literature Building Business Solutions: Business Analysis with Business Rules by Ronald G. Ross, Gladys S.W. Lam -304 pages. Business Analysis Techniques: 72 Essential Tools for Success by James Cadle, Debra Paul, Paul Turner – 272 pages How to Start a Business Analyst Career by Laura Brandau Seven Steps to Mastering Business Analysis by Barbara A. Carkenord - 384 pages. http://www.ukessays.com/essays/finance/analysis-of-factors-that-determine-the-capital-structure-finance-essay.php http://www.tankonyvtar.hu/en/tartalom/tamop412A/0007_e7_penzugyi_es_szamviteli_kontrolling_eng/analysis_of_the_composition_of_assets_and_liabilities_LNlmTbPCoJP8NaGI.html