The financial situation of a company represents the image of the accounts and assets of the company at a given moment .
How to analyze a situation and the financial health of a company?
To ensure the financial equilibrium of the company, it is essential to monitor the monitoring and optimization of the company’s cash flow on a day-to-day basis through the analysis of resources and uses.
The functional balance sheet is an analytical tool that identifies all stocks of jobs and resources and classifies them. The company’s activity is analyzed in long investment and financing cycles and in short operating cycles.
The analysis of the ratios is also a second analytical tool for the business manager giving him the ability to understand the financial situation.
How to present a financial situation (balance sheet…)?
The long cycles corresponding to stable resources (appearing at the top of the liabilities of the operating balance sheet) and stable uses (appearing at the top of the assets of the operating balance sheet):
Stable resources represent financing decisions that have committed the company over the long term, including own resources (equity, amortization, depreciation and provisions) and financial debts.
Stable jobs represent investment decisions.
The operating cycle corresponds to current assets with active cash and current debts with passive cash.
Current assets represent the gross amount of inventories, receivables and cash. Current debts are operating debts (suppliers and miscellaneous debts) and not financial debts.
How to know the financial situation of a company?
To know the financial situation of a company it is necessary to calculate the amount of working capital (FRNG) which must be positive . The FRNG is the part of the current assets financed by stable resources.
Calculation from the top of the balance sheet: Method which makes it possible to highlight the stability of the working capital.
You will get the amount by the difference between stable resources and stable jobs
Calculation from the bottom of the balance sheet: This is the subtraction between current assets and current debts.
How to explain a difficult financial situation?
Working capital is made up of the working capital requirement and net cash.
Working capital is essential for companies because of the time lags leading to the constitution of stocks and giving rise to receivables. These discrepancies therefore cause a working capital requirement which is obtained by the difference between inventories and work in progress and receivables from current assets less current debts.
Working capital depends on long-term decisions while the need for working capital results from short-term mismatches between expenses, revenues and corresponding payments. The difference between the two is the cash.
If the working capital is less than the WCR, the cash is negative. The company therefore uses bank overdrafts. It is therefore in a difficult financial situation.
How to improve the financial situation of a company?
In order to improve the financial situation of the company, the manager can increase his receipts by multiplying his sales and by getting paid more quickly.
He will also have to put in place a strategy to reduce the outflow of money, such as, for example, by reducing these expenses and increasing the payment period for suppliers.
He may also resort to more advantageous financing such as authorization of bank overdraft, factoring, long-term rental, etc.
