Financial analysis
Financial analysis focuses on the study of various ratios that measure a company's solvency or insolvency, allowing us to determine whether financing, based on its cost, is adequate to maintain stable development under conditions of adequate profitability.
From a financial perspective, the business community analyzed faces two problems: One, choosing the most appropriate financial means based on their cost and the possibilities of the financial market; another, the choice between investment alternatives that are sufficiently profitable to meet the payment of the obligations implicit in the financing of said investment. Hence, financial equilibrium is achieved when, once the necessary investments have been decided, the necessary resources are available at the right time and at the lowest possible cost.
Unlike economic analysis, which uses the analytical profit and loss account as its starting point and measures the returns generated by the development of business activity, financial analysis relies on the balance sheet to study the asset structure and sources of financing.
A common characteristic of financial ratios is the high variability they present over time; This is because companies have a wide scope to change the available financing methods and their equity structure. In contrast, economic ratios are much more rigid (with the exception of the atypical results rate and financial performance) because they are closely linked to the production process, whose possibilities for change are limited.
- Cash ratio (TR)
It is the percentage that represents the sum of current assets with respect to current liabilities. This ratio measures the possibilities of meeting short-term payment obligations.
- Working capital ratio (WCR)
Working capital is defined as the amount of permanent financial resources necessary to normally carry out current operations, and is calculated as the differential balance between current assets and current liabilities, and the fixed liabilities comprised of net worth and non-current liabilities.
A negative value for this ratio means that part of the fixed assets are financed with short-term debt, which would put the analyzed group in a difficult situation.
- Debt-to-Equity Ratio (REF)
This ratio relates the entity's total debts (total creditors) to its net equity and is the inverse of the financial autonomy ratio not given in this statistic. It is calculated as the percentage of liabilities reduced by provisions divided by net worth.
The debt rate is high among groups that rely primarily on external sources of investment financing.
This ratio and the financial autonomy ratio present negative values in those sectors with negative net own resources.
