The analytical balance is usually used to study the structure and dynamics of changes in the financial position of the company. Get it is not difficult. For this, the initial balance is used, in which individual articles are condensed and indicators of dynamics and structure are supplemented. At the same time, the structure of the initial reporting form is usually retained: current and non-current assets, borrowed and own capital, and equality of the total assets and liabilities are highlighted. The analytical balance is useful in that it allows you to systematize the calculations made, to determine what changes have occurred in the property status of the organization, to draw conclusions about which sources made it possible to open the inflow of new funds and in which assets the finances received are invested.
The role of analytical balance
The analysis of the comparative analytical balance provides data for the assessment of a number of points:
- determination of the value of current and non-current assets, changes in their ratio, as well as sources of their financing;
- Articles that are growing at a faster pace and the degree of their influence on the balance sheet structure;
- the share of assets belonging to receivables and inventories;
- distribution of borrowed funds by urgency and other parameters;
- determining the size of the share of equity and how much the organization depends on them.
The analysis of the analytical balance pays particular attention to the elements whose specific gravity is the largest, as well as to those whose share changes stepwise. Horizontal and vertical analysis of the dynamics of the structure and composition of the property makes it possible to set the size of the relative and absolute increase or decrease in the existing property of the company, as well as its individual types.
Diagnostics of the financial condition of a banking organization
A comparative analytical balance can be easily obtained from the original one by supplementing it with indicators of the dynamics, structure and directions of investments of commercial bank funds for the compared periods. As mandatory parameters of such an analysis are the following:
- absolute values for all balance sheet items at the start and end of a certain period;
- specific gravities of individual items in the balance sheet currency at the start and end of the reporting period;
- absolute values of changes;
- absolute indicators in specific gravities;
- percentage changes at the beginning of the period;
- indicators of the dynamics of changes in the balance sheet structure;
- the cost of one percent growth of each article and currency balance.
Comparative analytical balance has a certain predefined formula, which looks like this:
Net equity = gross equity - immobilized assets.
If we consider an example of an analytical balance, then its form includes:
- in columns 3-8 are indicators of the structure;
- Columns 9-17 contain indicators of dynamics;
- columns 12-20 - indicators of the structural dynamics of the balance.
Decryption
Columns 3-5 contain information about the absolute values of the articles and the results of the balance sections at the beginning and end of the period that you want to analyze. Fields 6-8 reflect the specific gravities, as well as the magnitude of the articles of the totals at the beginning and end of the periods. Columns 9-11 contain data on the absolute sizes of sections and articles for the analyzed periods. In fields 12-14, you can see the changes in the specific gravities of the values of the articles for the period that you want to analyze. Columns 15-17 contain changes in the absolute values of the articles to the parameters of the compared periods. Fields 18-20 show percentage changes in absolute values to the balance sheet results.
Comparative analytical balance sheet: asset
The structure of this part consists of several types of assets: non-source of income, income-generating, immobilized.
Liabilities of the bank balance - own (gross) and borrowed funds. In a separate line posted off the balance sheet are your own funds - net.
The comparative analytical balance is interesting in that it allows you to bring together and somehow balance the calculations that are usually made by the analyst upon initial familiarization. Such a table usually covers a huge number of important indicators that characterize the dynamics and statics of the financial position of a commercial bank. The analytical balance, the table of which contains the necessary data, includes indicators that are sufficient for vertical and horizontal analysis. The first allows you to determine the specific gravity of the net, and the second is designed to determine the relative and absolute changes in the size of individual articles for a specific period.
Method Features
Comparative analytical balance allows you to:
- separately distinguish between active and passive types of operations, assess the degree of their significance in the overall structure;
- use separate balance accounts to track the movement of balances;
- identify the degree of change in the scale for certain types of banking operations;
- highlight the reasons, as well as the degree of influence of dynamic changes in the articles on the profitability, stability, liquidity and profitability of banking operations;
- identify which resources of the bank or enterprise are own and which are attracted;
- allocate assets by categories: profitable, immobilized and liquid;
- allocate urgent funds of customers attracted in the form of a deposit.
In drawing up the structures of changes in liabilities and assets, it is quite realistic to draw conclusions about the influence of certain sources as the main ones for the inflow of funds, and also to know the direction of their investments.
How does it all work?
External conditions in which the activities of a credit organization are carried out are constantly changing. This requires the bank managers to react accordingly, as well as a detailed, more in-depth analysis of macroeconomic and financial policies, to develop more and more new methods for creating a surplus product by providing additional services to clients of the institution. The task of banks is to constantly strive to satisfy new market needs, to be prepared for adverse market effects, and to actively compete, especially one that is associated with changes in interest rates.
In modern conditions, all the difficulties of conducting banking activities require a complete revision of the concept of managing organizations in the field of lending. Nowadays, such a direction as strategic and financial management in banks is very promising. True, it is at the stage of completion and development. These areas have already managed to declare themselves in the banking sector, because only with their help it is possible to ensure effective management of relations that are associated with strategic objectives and goals for the formation of monetary resources and their use.
From all that has been said earlier, it can be concluded that financial management in the credit structure is a system of management measures that is taken by the relevant organizational structures to ensure the timely and continuous movement of credit flows, which are aimed at the stability of the banking institution, the profitability and safety of the resource base of all customers and partners .
Methodology for the formation of a comparative analytical balance
The analysis is usually performed by one of the methods proposed below:
- directly on the balance sheet, without first changing the composition of the balance sheet items;
- by means of constructing a sealing comparative balance, where some elements of balance sheet items that are uniform in composition will be aggregated;
- an additional adjustment is made to the data on the inflation index with further aggregation of articles in the required economic sections. Obtaining a comparative economic balance is allowed from the source using the procedure for compiling individual articles, as well as adding dynamic and structural indicators.
The convenience of this method lies in the fact that it systematizes and brings together the calculations traditionally carried out by analysts when they first familiarize themselves with the balance sheet. Analysis of the comparative analytical balance allows you to cover a huge number of indicators that demonstrate the statics and dynamics of the state of the organization in terms of finances. This includes indicators of vertical and horizontal analysis, directly from which you can get data and characteristics of the current state of the enterprise in terms of finances. These include:
- the reflected total value of the property of the organization, which is in the final line;
- the value of the immobilized assets, which is equal to the result of the first section;
- the cost of mobile means, visible as a result of the second section;
- the value of stocks, that is, material circulating assets;
- the size of the company's own funds, presented as a result of the third section of the balance sheet;
- the amount of borrowed funds, which is visible in the sum of the results of the fourth and fifth sections;
- the amount of working capital, visible in the difference in the results of the third and first sections.
Net working capital is seen as a separate position in the aggregated balance sheet and is defined as part of the current assets that receive financing through invested capital. This indicator is a characteristic of the degree of liquidity of the enterprise, which makes it of particular importance. Net working capital is the difference between current assets and liabilities. The greater the magnitude of this indicator, the more stable is the financial position of the organization.
The analysis of the analytical balance should be carried out with a mandatory attention to the change in the specific weight of the amount of working capital in the total value of the property, the growth rate of equity and borrowed capital and their ratio, as well as receivables and payables.
Stable financial stability of the enterprise is accompanied by an increase in the share of working capital, as well as high growth rates of equity in comparison with borrowed. At the same time, payables and receivables are approximately at the same level.
The essence of the horizontal analysis of the enterprise is to build the required number of analytical tables, where the absolute balance sheet indicators should be supplemented by indicators of dynamics. The analyst determines the degree of aggregation of indicators. This is another important way to determine the financial position of the company and its sustainability.
Using analytical balance
Very often, for an external analysis, the standard balance sheet is completely insufficient. In this case, the use of sealed is allowed. Its preparation involves a transformation consisting in enlargement or downsizing, as well as a thinning of the balance with the obligatory observance of a number of important rules:
- the real value of non-current assets should be affixed;
- the value of current assets (stocks, receivables, free cash) and liabilities (loans and payables) should be adjusted for amounts that are not included in the balance sheet for one reason or another.
The resulting difference between the value of liabilities and assets can be adjusted using a specially created article of the analytical balance sheet, which is called "Accumulated capital". It combines absolutely all types of retained earnings, accumulative funds, reserves formed from profit, consumption funds, as well as other balance sheet items. So, if we talk about how to check the balance, then it is worth noting that this article presents everything that the company managed to earn during its existence. If we are talking about privatized property, then from the moment of corporatization. You can consider the balance sheet of the enterprise, an example of which is presented below.
The structure can be considered satisfactory if the balance meets a set of certain criteria:
- the total amount of assets or liabilities, that is, the balance sheet currency, should increase at the end of the reporting period in comparison with the beginning;
- current assets should grow at a faster pace than non-current;
- the equity of the organization should be greater than borrowed, and the dynamics of its growth should exceed the growth rate of borrowed capital;
- accounts payable and receivables should grow at approximately the same rate;
- own funds in current assets should be invested by more than 10%;
- the balance sheet should not contain uncovered losses.
Few conclusions
So, if we consider the balance sheet of an enterprise, an example of which is described here, then it must be said that through analytical processing of the causes and components of an increase or decrease in certain parameters of indicators, vulnerabilities in the financial and economic activities of any company can be detected. This requires attention to different parts of the entire data set.
Considering the balance, an example of which is described here, you can notice various points. Suppose that a decrease in the total for a certain period, which is currently being considered, is evidence of a decrease in the economic turnover of the company, which is often a consequence of the insolvency of the enterprise. And sometimes it is a decrease in the company's turnover that becomes the reason for its insolvency. This fact can only be determined as a result of a deeper analysis:
- there may be a decrease in effective demand for the organization’s work, goods and services;
- the market does not receive the necessary materials, raw materials or semi-finished products, depending on the scope of the company;
- Branches are gradually involved in active economic turnover, using the “soil” prepared by the “parent” company.
A comparative analytical balance is required to determine. Conclusions on it can easily be made by a qualified accountant, who will identify all the important aspects of the company. When analyzing the increase in the balance sheet currency for the specified period, it is required to take into account the impact of changes in the valuation of fixed assets, if the increase in their value is completely independent of the development of production activities. This demonstrates the balance, an example of which is considered here. It is most difficult to take into account the degree of impact of inflationary processes, but without this it will not be easy to make any definite conclusions about whether the increase in the balance sheet currency was a result of the rise in the cost of finished products under inflationary influence, or whether it demonstrates the expansion of the organization's financial and economic activity.
Interpretation
A comparative analysis of the balance sheet, namely the structure of the liability, allows you to get one of the most significant reasons for the financial stability of the company. For example, an increase in the share of equity at the expense of any available source contributes to financial stability.
Retained earnings in this case may well become a source of working capital, as well as reducing short-term debt to creditors.
If you study how the structure of the company’s assets has changed, you can get quite important information. In particular, the increase in the share of working capital in property is often evidence of the formation of a more mobile asset structure, which allows to increase the rate of turnover of assets of the enterprise. A part of current assets may be diverted to lending to consumers of goods, finished products, organization and work services, subsidiaries and other debtors, which indicates the actual immobilization of this part of working capital from the main production process. You can also talk about curtailing the production base. Using a specific accounting procedure may well distort the real valuation of fixed assets.
, . , . , , . .