Role of Financial Analysis

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Role of Financial Analysis
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• The role of financial analysis in assessing the
  financial stability of Merger and Acquisition
• A feature of market relations is fierce
  competition, computerization of information
  processing, technological changes, improvements
  in legislation, inflation. In these conditions,
  Merger and Acquisition face the problem of
  rational organization of the financial activities
  of the enterprise for its further prosperity,
  increasing the efficiency of financial resource
  management, and ensuring a stable financial
  condition.
• One of the most important characteristics of the
  financial condition of an enterprise is the
  stability of its activities from the standpoint
  of both short-term and long-term perspectives. A
  financially stable company is one that, at its
  own expense, covers the funds invested in assets,
  does not allow unjustified receivables and
  payables, and pays off its obligations on time. 

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• Thus, financial stability should be understood as
  such a state of financial resources in which
  self-financing of reproduction costs and the
  solvency of an economic entity are ensured. The
  main thing in financial activity is the correct
  organization and use of working capital.
  Therefore, in the process of analyzing the
  financial condition, great attention is paid to
  the rational use of working capital.
• The following factors influence the financial
  stability of Merger and Acquisition
• The position of the enterprise in the commodity
  market
• Production of quality products
• Dependence of the enterprise on external
  investors and creditors
• The presence of insolvent creditors
• The efficiency of business and financial
  transactions.

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• The characteristics of financial stability
  include the analysis of
• The composition and placement of assets of an
  economic entity
• Dynamics and structure of sources of financial
  resources
• Availability of own circulating assets
• accounts payable
• Availability and structure of working capital
• Accounts receivable
• Solvency.
• The task of quantitatively assessing the
  financial stability of an enterprise does not
  have a unified generally accepted approach to the
  construction of appropriate assessment
  algorithms. The indicators included in various
  Financial Analysis methods can vary
  significantly, both in quantitative terms and in
  the calculation method. 

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• The easiest way to explain this is the quite
  natural presence of analysts' differing
  priorities and preferences for certain
  indicators nevertheless, two reasons can be
  formulated that, to one degree or another, cause
  this situation
• a) The attitude of Financial Analysis to the
  necessity and expediency of joint consideration
  of sources of funds enterprise assets
• b) The difference in the interpretation of the
  role of short-term liabilities.
• The first reason for the differences in
  approaches to assessing the financial stability
  of an enterprise is not significant from the
  standpoint of the number of indicators, but it is
  very significant in terms of semantic content. Of
  course, the coefficients calculated for the
  liabilities of the balance sheet are the main
  ones in this block of analysis of the financial
  condition. 

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• However, the characterization of financial
  stability using such indicators is unlikely to be
  complete - it is important not only where the
  funds were raised from, but also where they
  invested, what is the structure of investments
  from the position long-term perspective.
• The second reason for the difference in
  approaches is no less significant. Many
  indicators of this block have different content
  depending on what sources of funds and in what
  gradation are selected by the Financial Analysis
  for evaluation.

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