ANALYZING THE COMPANY'S BUSINESS WITH ... - utgjiu.ro · Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 1/2019 „ACADEMICA BRÂNCUŞI”

Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 1/2019

„ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007

ANALYZING THE COMPANY'S BUSINESS WITH MANAGEMENT

RATES

CĂRUNTU GENU ALEXANDRU,

ASSOCIATE PH.D, “CONSTANTIN BRANCUSI” UNIVERSITY OF TÂRGU JIU

e-mail:[email protected] Abstract:

Management ratios influence the company's financial performance, in particular profit, which imposes more

attention from management because profit is the main element in the formation of the funds needed for the safe

development and deployment of the company's business. In order to perform the analysis using the management rates,

we considered the functional link between the information provided by the balance sheet and that provided by the profit

and loss account. These judgments judged by decision-makers at the company level provide important information and

a real benefit to financial decision making.

Management ratios best reflect the contribution of each resource used by the company to achieve performance

and the degree of efficiency with which the company maximizes its resources within the economic circuit.

Keywords: management rates; profitability; rotation of assets; fiscal value;

Classification JEL: M40, M41

1. Introduction

The analysis of the time course of the company's activity is important for several reasons.

At the company level, the indicators that contribute to the formation of economic and financial

results are interconditioned so that a malfunction at the level of an indicator can cause a chain

reaction with disastrous consequences for the company and ultimately a reduction in activity or

even bankruptcy. In order to achieve the proposed objectives, it is absolutely necessary to analyze

the activity over time, so that the company's management can properly and efficiently manage the

resources at its disposal. The dynamics of activity involves analyzing the behavior of each

patrimonial element that participates in the economic circuit, allowing the highlighting and

integration of positive deviations and the elimination of negative deviations.

The analysis of the asset management efficiency is done with the specific management rates

and represents the way of ensuring and using the resources within the company, the main objective

being maximizing the profitability, maximizing the shareholders' wealth.

2. Dynamic analysis of the company's activity

The management rates analysis establishes an organic link between the information

provided by the balance sheet and the information provided by the profit and loss account and aims

to establish the time needed to complete the three stages of the economic circuit (supply,

production, sales) by the capital employed by enterprise [5].

Assessing the quality of enterprise management and its incidence on the result generated at

its level for all participants in this process requires an analysis of the behavior of each patrimonial

element involved and of each resource in terms of importance and duration in the economic circuit

[ 3].

The management rates measure the pace of renewal of property assets, namely the liquidity

of commercial stocks and receivables, on the one hand, and the exigibility of operating debts, on

the other [7].

The basic purpose of the activity indicators is the quantification of the speed at which a

certain asset class goes through the money-product-money circuit, eventually recovering through

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the production or marketing processes in which it participates in the value of the products or

commodities offered for sale [1].

The methodological analysis of the company's activity with the management rates is

expressed in two sizes:

number of rotation (No) - this indicator shows how many times an asset or liability item is

trans- ferred to liquidity over the analyzed management period and expressed as a

percentage;

EpsauEa

CANr

Where:

CA = Fiscal value;

Ea = active asset;

Ep = passive element.

the duration of a rotation (Dz) - this indicator shows the number of days required for asset

or paisv to go through all stages of the economic circuit.

TCA

EpsauEaDz

Where:

T = time interval for analysis and expressed in days.

Table no. 1. Data extracted from the balance sheet at S.C. Elpromex Consult S.R.L. INDICATORS 2016 2017

Fixed assets 852.241 651.982

Current assets, of which: 1.025.713 1.587.828

- Stocks 4.057 39.014

- Claims 904.093 1.016.053

- House and bank accounts 117.563 532.761

Expenses in advance 2.330 2.330

Liability 1.388.387 1.295.206

Income in advance 71.976 -

Provisions 87.044 273.234

Personal capital 332.877 673.700

Source: http://www.mfinante.gov.ro/infocodfiscal.html

Table no. 2. Data extracted from the profit and loss account at S.C. Elpromex Consult

S.R.L. INDICATORS 2016 2017

Net turnover 1.547.404 3.848.865

Total income 1.771.907 4.048.696

Total expenses 1.721.004 3.301.073

Gross profit 50.903 747.623

Net income 41.688 647.822

Number of employees 16 16

Source: http://www.mfinante.gov.ro/infocodfiscal.html

3. Diagnosis of company activity using management rates

Assessing the quality of enterprise management and its incidence on the result generated at its

level for all participants in this process requires an analysis of the behavior of each patrimonial

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element involved and of each resource in terms of importance and duration in the economic circuit

[3]. The total asset management rate highlights how the company's management manages the

economic means at its disposal to make the activity sustainable and profitable.

The dynamics of the rotation speed means comparing the revenues obtained in the current

year with the provisions of the Income and Expenditure Budget, by comparison with the

achievements of the previous period or considering other normative or indicative sizes specific to

the field in which the respective company operates [2].

Table no. 3. The rotation speed of the total asset INDICATORS 2016 2017 Total active 1.880.284 2.242.140 361.856 119,24% 19,24%

Net turnover 1.547.404 3.848.865 2.301.461 248,73% 148,73%

Number of rotations% 0,82 1,72 0,9 209,75% 109,75%

The duration of a rotation

(expressed in days)

437 209 - 228 47,82% - 52,18%

Source: authoring, on the basis of the annual financial statements for the period 2016-2017

At the company analyzed, the total asset rotation speed in 2016 is 0.82 turns and in 2017 is

1.72, which means an increase of 0.9 rotations in absolute values, representing an increase of

109.75 %. This increase in the rotation speed of the total asset mainly means increasing the

efficiency of asset use and increasing the liquidity of the asset. This increase in rotation speed is

mainly due to turnover growth of 147.73% in 2017 compared to 2016 and means efficient

management of economic means. As the number of rotations increased, the duration of a rotation

decreased by 228 days, which means a 52.18% reduction in relative sizes, with positive effects on

the company's economic and financial performance. The results were obtained as a result of the

efficient management of the company's resources, of the commercial policy, of the improvement of

the services offered to the clients, of maintaining the permanent contact with the clients.

The rotation of fixed assets highlights how efficient the enterprise is in using its production

infrastructure, which is why it is also called the rate of use of fixed assets [8].

Table no. 4. The rotation speed of fixed assets INDICATORS 2016 2017 Fixed assets 852.241 651.982 -200.259 76,50% -23,49%

Net turnover 1.547.404 3.848.865 2.301.461 248,73% 148,73%



(expressed in days)

198 57 - 141 28,79% - 71,21%


The rate of rotation of fixed assets increased from 1.81 in 2016 to 5.90 in 2017, which means

an increase in relative sizes of 225.97% and represents an increase in the efficiency of the use of

fixed assets. An increase in rotation speed means that the efficiency of the equipment has been

increased to achieve the total sales volume.

The rate of rotation of circulating assets is one of the significant indicators that characterize

the efficiency with which the enterprise's current assets are used [5]. The speed of inventory

rotation shows the rapidity with which inventories pass through the supply, manufacturing and

sales phases, until they return to their original cash form [6].

The rate of rotation of receivables is the most important indicator that the company needs to

analyze and track, as this indicator shows the number of days from the sale of a product, the

provision of a service, and the execution of works until they have received their counter value . The

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receivable collection period is related to the commercial policy adopted by the company and the

operating cycle.

The rotational speed of the circulating assets included in the performance indicator battery is

one of the significant indicators that characterize the efficiency with which the enterprise's current

assets are used [4].

Table no. 5. Rotational speed of circulating assets, stocks and receivables

INDICATORS 2016 2017 Current assets 1.028.043 1.590.158 562.115 154,67% 54,67%

Net turnover 1.547.404 3.848.865 2.301.461 248,73% 148,73



(expressed in days)

239 148 - 91 61,92% -38,07%

Stocks 4.057 39.014 34.957 961,64% 861,64%

Number of rotations% 381,41 98,65 -282,76 25,86% -74,14


(expressed in days)

1 3 2 300% 200,%

Claims 904.093 1.016.053 111.960 112,38% 12,38%



(expressed in days)

210 95 -115 45,23% -54,77%


Analyzing the data on current assets, an acceleration of the rotation speed from 1,50 rotations

in 2016 to 2,42 rotations in 2017 is observed, which means an increase of 61,33% over the previous

year. Due to this, the duration of a rotation decreased by 91 days, which means a decrease of

38.07% compared to the previous year, mainly due to the increase in turnover and the increase of

the rotation speed by 61.33% compared to the previous year.

The increase in rotation speed was due to the efficiency of the use of circulating assets and

was reflected in the main economic and financial indicators and here I refer to the operating profit,

gross profit and net profit of the company. As regards the speed of rotation of inventories, it

recorded a reduction of the number of rotations by 74.14% compared to the previous year, which

means a low efficiency of their use, because the duration of a rotation increased by 200% compared

to the previous year . To speed up the rotation speed, the company needs to consider better

stocking, linking the supply process with product loyalty, and better customer relationships. In

order to increase the number of transactions with customers, the company should regularly inform

customers of the products offered, keep customers informed about the full range of products and

services offered, organize events for new clients and inactive people. At the company analyzed due

to the customer loyalty policy, the period of recovery of the delivered goods and the services

rendered decreased in 2017 to 95 days, which means a decrease compared to the previous year by

115 days and in relative sizes a reduction of 54 77%.

The gap between the billing date and the receipt date has also been reduced due to the

increase in the rate of rotation of receivables of 121.64% more than in the previous period.

Debt and capital analysis are important to the company, and if they are not tracked and

analyzed permanently, they may lead to a default or bankruptcy at some point. The debt rotation

shows us during the analysis period how many days the debts are paid on the basis of turnover or

how many days the company pays its obligations to the suppliers. The rate of rotation of capital

means the number of times the enterprise has used both own and borrowed sources to finance fixed

and current assets. The rapidity with which these funds help finance the company's business mainly

takes into account the investment and development policy of the future.

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Table no. 6. The rate of rotation of debt and capital

INDICATORS 2016 2017 Net turnover 1.547.404 3.848.865 2.301.461 248,73% 148,73%

Liability 1.388.387 1.295.206 -93.181 93,28% -6,71%



(expressed in days)

323 121 -202 37,46% -62,54%

Personal capital 332.877 673.700 340.823 202,38% 102,38%



(expressed in days)

77 63 -14 81,82% -18,18%


The research showed that compared to 2016 when the efficiency of capital use was 4.65

rotation, in 2017 this efficiency increased to 5.71 revolutions, which means an increase of 22.80%

and the duration of a rotation decreased from 77 days in 2016 to 63 days in 2017, which represents

a reduction of 18.18%. As the company's management increased the rate of rotation of capital

managed to reduce the number of days to pay debts. At the company analyzed, the debt rotation

rate rose from 1.1 in 2016 to 2.97 in 2017, which means an increase of 167.57%, and in these

conditions the payout period was reduced from 323 days in 2016 to 121 days in 2017, representing

62.54%.

4. Conclusions

Company-level management analyzes provide dynamic information to current management

as these rates highlight the pace of renewal of all components, both active and passive, and

consequently financial decisions are taken in accordance with the company's economic and

financial reality.

Of particular importance for the company's management is the use of all the resources it has

at maximum capacity and in this context the analysis of the company's activity with the

management rates highlights the participation of each patrimonial element in the formation of the

results.

Diagnosis of company activity is useful because it highlights management performance,

careful tracking of these rotation rates at the company level will lead to superior economic and

financial performance because with their help it can quantify the level of performance of the

activity of all the departments of the company and consequently the accountability of all direct or

indirect participants in the formation of results.

5. Bibliografie

1. Dragotă V., Ciobanu A., Obreja L., Dragotă M., - Financial Management, vol. I, Financial

Analysis and Operational Financial Management, Ed. Economică, Bucharest, 2003;

2. Işfănescu A., (coordinator) - Practical Guide to Economic and Financial Analysis, Tribuna

Economică, Bucharest, 1999;

3. Petcu M., - Economic and financial analysis of the enterprise. Problems, Approaches,

Methods, Applications, Economics Publishing House, Bucharest, 2003;

4. Petrescu S., - Analysis and Financial-Accounting Analysis: Theoretical and Applied Guide,

Ed. CECCAR, Bucharest, 2008;

5. Petrescu S., - Economic and Financial Evaluation of the Enterprise: Concepts-Methods-

Procedures, Ed. Tehnopress, Iasi, 2012;

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6. Păvăloaia W., Paraschivescu M.D., Olaru G.D., Radu F., - Financial analysis. Case studies,

Ed. Tehnopress, Iasi, 2006

7. Pirtea Marilen et al. - Financial Management of the Company, Mirton Publishing House,

Timişoara, 2010;

8. Ştefea P - Analysis of enterprise results, Mirton Publishing House, Timişoara, 2002;

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ANALYZING THE COMPANY'S BUSINESS WITH ... - utgjiu.ro · Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 1/2019 „ACADEMICA BRÂNCUŞI”