The objectives of financial analysis is to enable an assessment of the economic and financial health of a company, as the orientations of the financial analysis will be strongly influenced by the major financial constraints of the company. Similarly, these guidelines will rely both objectives of the analyst and the position of different users. Thus donor funds are primarily interested in the liquidity of the company, that is to say, by its ability to pay its short-term maturities, without neglecting the long-term financial stability. In the case of long-term credit, they will focus on the long-term solvency and profitability, which determines the payment of interest and repayment of principal. Therefore, three main goals are possible:
Assessment of the creditworthiness of the company:
Originally, the financial analysis has been developed by bankers, in order to assess the creditworthiness of their customers, that is to say their ability to ensure their cash flow, the debt service. The credit is based on the financial resources available to meet its liabilities.
Maximizing shareholder wealth:
For shareholders, the financial balance is achieved if earnings expectations are higher than the risks.
Evaluation of the profitability of the company:
Besides the solvency requirement of a minimum level of profitability is essential for the survival and development of the company to generate positive results and fund its growth and repayment of borrowings.
The main stages of reasoning:
I - Acknowledgment general
This phase is a prerequisite for effective guidance work on risk areas most salient. It has, in its consistency, the same characteristics as in the process of diagnosis accounting and tax.
It is thus based on the following approach:
- Identification of significant aspects that characterize the activities of the company, its legislative and regulatory environment, its operating structure, its economic ties with other national and international entities …
- Knowledge of exceptional operations and require specific treatment (fusion, partial transfer of assets) or that characterize the operation during this period (extension activity geographically, integration of new activities, applied research …).
The analyst has a variety of techniques to capture the knowledge sought. We will try below to cite the most important:
- Interview with the executives and accounting and finance,
- The analysis of the internal and external documentation,
- Retrieval of data sector-specific and comparative
II - The flow method:
Financial analysis by flow method can be described as dynamic as it is to conduct a detailed study of summary statements and their evolution in order to arrive at a synthesis concerning the financial situation of the company and the elements that affect its development.
A-The analysis of the balance sheet:
The balance analysis uses two types of distinct approaches, namely: liquidity or due patrimonial approach and the functional approach.
1 – The asset approach or liquidity due (balance sheet):
The approach analyzes the heritage assets of the company in a liquidation perspective of cessation of activity that is to say an optical heritage assessment. Thus, it focuses on the classic presentation of assets and liabilities in order of liquidity and increasing due and where there are claims and debts of more and less than a year. Most often used by bankers and investors this approach :
- Assess the liquidity of the balance sheet: The balance sheet liquidity refers to the ability of the company to meet its deadlines for its banks or its suppliers. It can be understood as a measure of the speed of rotation of the asset relative to the liabilities. The balance sheet of a company is liquid when, for each maturity, duration of resources is greater than the duration of employment.
- To determine the actual values of the assets held by the company;
- To assess the creditworthiness of the business: the ability of the assets to cover the debts of the company in case of liquidity;
2 – The functional approach:
In contrast to the asset-based approach, the functional approach is to consider the company as a going concern and as a portfolio of jobs and resources. For this purpose, the assets and liabilities are classified by type, depending on the cycle of operating, investing and financing activities.
Functional analysis is that recommended by the accounting Morocco. It is used to classify the different operations performed by the company in relation to their function hence the term “functional balance”. Thus, the functional assessment helps to explain the operation of the business.
The study of functional assessment allows to highlight three key concepts, namely:
- The working capital;
- The total financing requirement;
- The net cash.
a-The capital function (FRF)
Working capital is the balance between resources over a year called stable and fixed (stable jobs for more than one year). Positive, it reflects a surplus in the first second. Negative, it shows that the assets are financed by cash resources or surplus operating resources on jobs (needs negative working capital). This can be dangerous because these resources are payable at any time while gradually liquefy assets.
Thus, we can say that the FRF is a positive margin of safety for the company against the problems of inventory turnover, debt collection …
- Calculation of FRF:
- From the top of the balance sheet:
FRF = Resources stable – stable jobs = Permanent Financing – Fixed assets
- From the bottom of the balance sheet:
FRF = [Current assets (excluding cash) cash assets +] – [Current liabilities (excluding cash) Liabilities Cash .
b-The total financing requirement (BFG):
- Calculation of BFG:
Operations of the operating cycle (purchasing, production, sales) as well as non-operating, give rise to actual flows (goods, materials, finished products) with the consideration of cash flows. The time lags between these two categories of flows explain the existence of receivables and payables.
The time that elapses between the purchase and resale of goods between the purchase and use of raw materials between the production and sale of finished products is at the origin of stocks.
Thus, the operations of the business operations simultaneously generate:
The assets operating and non-operating, which are jobs so funding needs;
Debts farm and off-farm, which are sources of funding.
Needs and resources generated by the operations of the company do not balance. Generally, the needs exceed the resources, so that the difference [Current assets Current assets + operating non-operating] – [Current liabilities Current liabilities Operating Non-operating +] represents a financing which requires a corresponding resource. This resource is naturally the bankroll.
Hence the name “total financing requirement” which is given by the formula:
BFG = [Current assets Current assets + operating non-operating] – [Current liabilities Current liabilities Operating Non-operating +]
Cash is an indicator that provides information on the cash position of the company. It expresses the results and the financial impact of strategic investment decisions and financing and operating decisions.
TN can be calculated in two ways:
TN = Cash Assets – Liabilities Cash
TN = FRF - BFG
B-Analysis of CPC:
Account of income and expenses intended to account for operations that are at the origin of profit or loss for the year. All income and expenses of the company are classified according to three types of functions:
Expenses and revenues;
Financial income and expenses;
Non-current income and expenses.
A partial result can be obtained at each level of analysis as the difference ENTERE products and fillers.
By analyzing the CPC, it means:
- The study of performance indicators by type of transaction;
- Analysis of the results of training across the state balances management;
1 – The study of performance indicators by type of transaction:
CPC presents results by type of transaction. These results are due to the operations of the business operations, its financial policy as well as non-routine transactions made by the company. The CPC provides the following results
It is obtained by decreasing revenues Operating expenses:
EBIT = operating income – operating expenses
Operating income includes the impact of trade policy, purchasing management, the organization of production and management personnel, the impact of the investment policy and the impact of operational risks.
It measures the ability of a firm to negotiate and manage the use of his supplies of goods, commodities and services, to negotiate sales of goods, products and services, negotiate and manage labor costs and integrates the impact of depreciation and identified risks affect profitability.
The financial result:
It provides information on the financial policy of the company, including its debt policy, financial expenses, the choice between the various funding options …
Financial income Financial income = – financial charges
Profit before tax
CPC shows an intermediate indicator: profit before tax measure the impact of current operations known (and financial holdings). Its comparison to operating income shows the impact of the financial policy of the company.
Profit before tax = Operating profit + financial income
The non-operating income:
It reflects the influence of operations that do not fit into the normal operations of the company saw their outstanding characters. This is a result that deserves a particular interest since non-current operation can create a gain that can compensate for a lack industrial or commercial.
Non-operating income = Non-recurring income – non-recurring expenses
The net result:
It is the balance that remains available to the company after payment of taxes results. Indicator often highly publicized with third Unlike some balances more relevant, interpretation should be cautious given the influence of a part of the financial policy and other elements exceptional company.
Net profit = (profit + non-operating income) – Income tax
2 – Analysis of training results across the state balances Management (ESG):
The GSS provides an analytical training and income distribution. Thus, it is possible to determine whether the business is profitable and what are the reasons for this profitability through several intermediate balances proposed by the GSS.
The intermediate balances:
a. The gross margin on sales in the state:
It applies only to commercial enterprises or those with a commercial industry. It measures the performance of a company’s business and its ability to create a difference between the sale proceeds of the goods it sells in a year and the purchase price of such goods sold. The gross margin on sales in the state can be defined as the additional value provided by the company for goods sold.
The gross margin on sales in the state = merchandise sales – purchases of goods b-production for the year:
In contrast to the gross margin on sales in the state, this balance relates only to industrial companies. It allows you to form an opinion on the level of business activity and production closer to consumption corresponding year.
The value is a concept invented by economists in the national accounts, this concept was taken in the accounting business plan. The added value is the value which, wages, taxes, interest, profits etc. …. is added by the company for goods, materials and services purchased from its suppliers for the value of goods, products and services sold. Moreover, this indicator to assess the size, rate of growth of the company and its contribution to national wealth.
Value = production + profit margin exercise – exercise consumption
Apart balances already presented in the study of performance indicators by type of transaction it remains to consider the excess crude
of business which is in itself a significant indicator in the analysis of CPC.
The d-excess EBITDA:
The excess EBITDA includes the impact of trade policy, purchasing management, the organization of production and management personnel. It measures the ability of a firm to negotiate and manage the use of his supplies of goods, commodities and services, to negotiate sales of goods, products and services, negotiate and manage its labor costs. This is a very useful indicator in the company’s internal comparisons because it does not account for the investment policy or funding policy. It is also described as the first significant balance in terms of profitability.
EBITDA = value + operating subsidies – taxes
- Personnel expenses.
Cash flow from operations (CFO)
CAF represents the resource released during the year by all management operations. It is an indicator of performance in the sense that it shows the ability of the company to renew its capital finance its investments and remunerate its shareholders.
CAF can be calculated using two methods: the additive and the subtractive method.
The additive method:
This is the method recommended by the accounting Morocco. It is calculated from the net .
The subtractive method:
This method calculates the CAF from the EBITDA:
EBITDA or gross operating failure
+ Other operating income
+ Reversals of operating elements circulating
+ Transfer of operating expenses
- Other operating expenses
- Depreciation on operating elements circulating
+ Financial products (except again for financing permanent and fixed assets)
- Financial expenses (excluding depreciation relating to ongoing funding and assets)
+ Non-current (except for the times fixed assets and financing
Cash flow is the amount of internal resources available to the company to finance its investments after the distribution of dividends. The flow allows the company to be independent vis-à-vis credit institutions and allows therefore to improve its profitability while limiting the use of debt and reduce its financial costs.
Flow = cash flow – Dividends
To complete and refine the financial analysis, financial analysts use next to the flow method to another method, the ratios. This method is characterized as the static and based on the comparison of the ratios in time or in space.
Comparison in space allows the title to compose the company’s performance to that of a similar one in the same industry. This type of analysis allows the company to position itself in the market and its competitors.
On the other hand, the comparison over time to study and to better visualize the evolution history of the company.
It remains to note that it is not necessary to calculate the maximum possible ratios because ratios are enough significant and well-chosen to reflect the financial health of the company.