In this article we intend to outline the methodology of financial analysis used by the Department of risks with the aim of analyzing liquidity and solvency, and to facilitate decision making to minimize the period of collection.
This methodology is based essentially on the calculation of ratios, although some authors criticize the use thereof, resulting from excessive use has been made of them. They are a tool for analyzing Balance. To quantify the financial relationship between two quantities and thus formulate an objective opinion on soundness, adequacy or weakness of this relationship.
When expressing a measure of the relationship between two quantities, the ratios allow comparison with standards and / or dynamic behavior of the indicators under analysis. This objective could not be achieved with absolute figures of accounting. The ratios, however, since the value measured on a scale of magnitude over another, allowing for comparative analysis.
It shows a diagram with the substance of the proposed methodology, which is valid for any Hotel. This diagram shows the structure of the analysis, which is composed of what I call “tasks” and “subtasks, which are themselves parties to be divided and subdivided it.
SUMMARY
In this article we try to make an outline of the analysis of financial Methodology Used by the Department of Risks with the Objective of Analysing Solvency and liquidity, as well as of Facilitating the decision making to reduce to the minimum the Period of collections. This Methodology is based on the fundamental thing in the Calculation of Ratios, although authors exist Who Criticize the use of Such, product of the abusive use of them That have Become. Such They constitute an instrument of analysis of the Balance. They allow Quantifying the Relation Between Two Existing Financial magnitudes and, this way, to ask yourself on an Objective judgment solidity, sufficiency or Weakness of this relation.
When Expressing a Measurement of the Relation Between Two magnitudes, the ratios to allow comparison with the Norms and / or dynamic Indicating Behaviour of the object of analysis. Objective This Could not be Obtained with the absolute numbers of the Accounting. The ratios, however, sincere They measure the relative value of a magnitude of a magnitude with Respect to another one, That allow the comparative analysis. is a diagram with the essence of the Propose Methodology, That is valid for Any Hotel. This diagram shows the structure of the analysis, Which is reason why we will compound termed “tasks” and “subtasks,” Which parts are in it the one in Which the same is Divided and subdivided.
In this article we intend to outline the methodology of financial analysis used by the Department of risks with the aim of analyzing liquidity and solvency, and to facilitate decision making to minimize the period of collection.
Before explaining in detail the methodology that is, it is clear that it is based essentially on the calculation of ratios, although some authors criticize the use thereof, resulting from the misuse has been made of them. They are a tool for analyzing Balance. To quantify the financial relationship between two quantities and thus formulate an objective opinion on soundness, adequacy or weakness of this relationship.
Ratio is a Latin word meaning reason, ie, a fraction, consisting of a numerator and a denominator, and provides a quotient. The Castilian word more appropriate is a coefficient, and specifically in our case, that of financial ratio.
When expressing a measure of the relationship between two quantities, the ratios allow comparison with standards and / or dynamic behavior of the indicators under analysis. This objective could not be achieved with absolute figures of accounting. The ratios, however, since the value measured on a scale of magnitude over another, allowing for comparative analysis.
For the ratios have a genuine utility in the economic-financial analysis of the company, must know in advance the nature of the financial relationship between the two quantities against each other.
Just when we know a priori, or is theoretically the nature of the functional relationship between two quantities of balance, or between a balance sheet and other accounts of result, is valid ratio analysis as a quantitative expression of this function .
Below is a chart with the essence of the proposed methodology, which is valid for any Hotel. This diagram shows the structure of the analysis, which is composed of what I call “tasks” and “subtasks, which are themselves parties to be divided and subdivided it.
The analysis is based essentially on the Dupont pyramid, although some adjustments have been made in correspondence with the specific features of the Hotel.
Each of the main aspects of the diagram, from now on we will call it work, which means that the methodology is composed of the following tasks:
Financial Analysis Tasks.
I. Analysis of financial returns.
II. Analysis of financing.
III. Analysis of creditworthiness.
At the same time each of these tasks are subdivided into subtasks which often coincides with a specific indicator.
After making this introduction will explain in detail the contents of each task and subtask.
I-Analysis of financial returns.
This task is the analysis of profitability from a different perspective to the commonly used in the analysis of this indicator, as it is analyzed from the financial point of view if it is profitable or not management.
It consists of the following subtasks:
I-a) – Profitability of business.
This is the subtasks that match an indicator (ratio) of the same name.
Gross
Profitability of business = ————–
Net assets last year.
The numerator is operating profit and the denominator for the asset after deducting depreciation.
It measures the profitability of the business enterprise itself.
I-b) – Return of capital.
This is the subtasks that match an indicator (ratio) of the same name.
Net (1)
Return on capital = ———————
Year Own Resources
(1) In this case involves gross and net results for the company be free of sales tax.
The numerator is operating profit and the denominator of the capital last year.
Measure the return on equity ownership.
I-c) – Return on sales.
This is the subtasks that match an indicator (ratio) of the same name.
Net (1)
Return on sales = —————-
Sales.
(1) In this case involves gross and net results for the company be free of sales tax.
The numerator is operating profit and sales denominator.
This indicator is calculated for all the operational indicators that cause sales.
· Food & Drink.
· Other Income.
· Sales Other food and beverage revenue.
· Board.
· Pension Sales Other food and beverage revenue.
• Room pension.
· Production Total.
It is necessary to explain that the explanation varies according to the denominator chosen and provides a general assessment of how they affect each of these operational indicators of the benefits of the accounting year under review.
It measures the relationship between prices and cost.
II-Analysis of financing.
This task is to analyze the composition and structure of the balance sheet, as well as those indicators that reflect the rotation of the means and funds, and the weight and importance of financing the rest itself.
It consists of the following subtasks:
II-a) – Analysis of the structure of the media.
This subtask is to calculate the specific weight of each asset and liabilities in the total of each group respectively.
The analysis should focus on the specific weight of its own assets and liabilities, whereas this ratio directly affects the level of solvency and liquidity of the company.
II-b) – Analysis of turno
ver and funding.
This subtask is to analyze the behavior of the following indicators:
Debt ratio: This indicator measures the level of indebtedness of the company and its ability to respond rapidly to any financial eventuality.
Debt.
Debt ratio = ———————-
Financing Total (Total liabilities)
The numerator is comprised of total debt (current liabilities and long term) and the denominator by the total liabilities.
Inventory turnover: This indicator reflects the number of dollars of stock sold by weight, ie the number of rotations during the study period.
This indicator is calculated for all the operational indicators that cause sales, except sales per stay.
Food and beverages.
Board.
Total Sales. (Pension Other food and beverage sales income.)
Sales
Inventory turnover = —————-
Stocks.
The numerator is the corresponding output indicator and the denominator is always the stock of the analysis period.
Fixed asset turnover: This indicator represents the rotating flow of the media fixed on sales (general production.)
General Production.
Fixed asset turnover = —————-
Immobilized.
The numerator is the general production and the numerator is the value of fixed media.
It should be noted in the calculation of this indicator for the branch under consideration, fixed media (Buildings.) Are the fundamental amount of assets, in the generality of cases over 70% of the total.
Total asset turnover: This indicator represents the flow of asset turnover on sales (general production.)
General Production.
Fixed asset turnover = ————–
Total Assets
The numerator is the general production and the denominator is the total value of the asset.
When calculating this indicator extends the clarification of the previous indicator, since in the case of fixed media represent approximately 90% of total assets.
Return on Equity: This indicator represents the level of equity performance.
Net income
Return on equity = —————
Stockholders’ equity
The numerator is the total revenue (production) of the period under review and the denominator in this case is the capital provided by partners. Is the dollar amount obtained by the amount of capital contributed by partners.
Frozen / Media circulating: This indicator represents the ratio between fixed and circulating means.
Frozen
Inmov. / Circulating = —————
Circulating media.
The numerator is the value of fixed media and the denominator the circulating media.
Own resources / Other: This indicator represents the ratio of equity and other financings.
Equity
Inmov. / Circulating = —————–
Other financing.
The numerator is the value of the equity and the denominator of the rest of financing.
III-Analysis of solvency.
This task is the analysis of the company’s ability to cope with any financial contingency, as well as financial response capacity. This is based on the analysis of a set of indicators to this effect by analyzing the composition of debt by age.
It is composed of the following subtasks:
III-a) – Indicators.
This subtask as its name suggests is the calculation of the indicators listed below:
Liquidity Ratio: Represents the degree to which the rights of short-term creditors are covered by assets that can be converted into cash within a period corresponding to about the required maturity.
Current Assets
Liquidity Ratio = —————–> 1
Short-term Liabilities
The numerator is the current assets and the denominator the total number of creditors (including suppliers)
In any event must be greater than one, the opposite would mean a suspension of payments situation. Its value depends on wise financial health of borrowers, and the speed of movement of stocks.
Capital ratio: Represents the legal soundness of the company, the ability to cope with the current liabilities and long-term to total assets.
Total Assets
Liquidity Ratio = —————> 1
Total Liabilities
The numerator is the total assets and the denominator the total number of creditors more checking accounts.
In any event must be greater than one, the opposite would mean a suspension of payments situation. Its value depends on wise financial health of borrowers, and the speed of movement of stocks.
Acid Test: Represents the degree to which the rights of short-term creditors are covered by assets that can be converted into cash without selling the stock.
Debtors Available
Quick ratio = ——————-
Short-term Liabilities
The numerator is the assets minus the stock and the denominator the total number of creditors (including suppliers)
Integral indicator.
Finally as a final element to the overall assessment of the financial situation of the company from the total number of indicators seen in the tasks and subtasks described above proposes an integrative indicator for observing the overall behavior of the indicators that most influence this analysis.
To do this we have selected a set of indicators covering a sufficiently comprehensive assessment of the company and proceed as follows:
A) – Selection of a set of significant ratios covering the most important aspects of economic and financial situation of the company. In the present case have been selected Profitability of sales, inventory turnover, total asset turnover, solvency ratio and ratio of financial independence.
B) – Establishment of standards to compare the ratios for any of the known methods (theoretical, statistical, empirical or experimental budget.) In this case, the paucity of information and literature on this subject the rules are taken from empirical .
C) – Establishment of some weighted indices for each of the selected ratios that are significant expression of the importance of each of them. The sum of all weighted indices must be equal to unity.
From the previous steps calculates the integrator as the sum of the ratios of the indicators between the standard rate multiplied by the relevant weighting. This indicator to be evaluated to correct the financial situation of the firm should take values greater than unity.
III-b) – Analysis of debt by age.
This subtask is the analysis of accounts receivable to the stage of the same age, considering the following classification:
Accounts receivable over 90 days.
Accounts receivable over 60 days.
Accounts receivable over 30 days.
Accounts receivable from this month.
Depending on the percentage of debt that is in each of the above classifications, mean efficiency in managing the company charges in the case of course to have the least amount of accounts receivable over 60 days recovery. Several authors consider as a standard for collection of outstanding invoices over 60 days to 15% of the debt, although we need to consider the characteristics of creditors and the payment terms agreed in the contract, especially in the case of creditors international.
III-c) – Analysis of average days of billing.
From this analysis also determines the average days of receipts of the company, as the relationship between output (sales) and collections of the period.
This indicator is calculated in two ways, one indicator is called static, and another known as dynamic indicator.
Static indicators:
This indicator as its name implies, finds the average payday until a certain period (date estimated), and although it considers the cumulative production to date, does not take into account seasonal variations and / or influx of tourists (periods of high and low).
For this purpose, has created a program that automatically updates the data from the close o
f receipt, and showing every day the following information:
· Comparison of the composition of debt by age with the same period last year and the previous month.
· Compare the average payday static with the same period the previous year and the previous month.
· Trend of average static paydays this year.
This analysis is of vital importance, as each day guarantee the accuracy of the claims to those agencies and markets that most affect the delay of recovery.
This is something totally new, and is an improvement to the existing methodology.
More practical example in attached tables.
Indicator dynamic:
As tourist management fluctuation in two components of this indicator fluctuate depending on the type of season, it is necessary considering the calculation of the dynamic behavior, for which both elements are weighted recital 1 year away, is that calculates the weighted average of both sales and collections and determining the relationship between them.
This indicator is calculated only at the end of the month, and in the summary table of the same trend is observed over a year away.
From all the above it follows that the tendency of these indicators should be to decrease, given the deadlines agreed with the various creditors (Tour Operators).
In the case of this analysis as indicators of output (sales) have been considered the Production Room / board and General Production Hotel.
As you can see this methodology is a basic tool in making decisions regarding the finances of the company.
Related posts:
- Financial ratios and their use in analysis and financial management
- What are the most common financial ratios used in the analysis of banks?
- More than a financial analysis: a question of reasons
- Financial and economic analysis
- ANALYSIS OF FINANCIAL STATEMENTS OF A COMPANY OF CONTAINERS
- Classification of methods of financial analysis
- Financial analysis
- Financial analysis for decision making
- What are the key financial ratios of debt?
- Importance of strategic analysis of corporate financial statements.
- The economic and financial analysis in business management Cuban
