Financial analysis approach

For the financial analysis of an enterprise’s activities for a certain period or a single transaction, there are a large number of developed and standardized methods, generally accepted coefficients (Dupont formula, transaction profitability ratios, etc.). However, the analysis carried out characterizes the activity or transaction as a whole, without the possibility of analyzing the constituent elements, which means there is no possibility of control action based on the results of the analysis of the transaction.

The proposed method makes it possible to analyze a transaction at the level of its constituent elements. Analysis of the elements of all transactions for the period under study allows for an in-depth analysis of the commercial activities of the enterprise during this period.

The elements of the transaction are:

1. Purchase

• Vendor
• Cost of goods
• Date of delivery
• Date of payment

2. Logistics during purchase (for indirect delivery)

• Delivery costs
• Customs costs

3. Other expenses upon purchase

• Intermediary
• …………..

4. Warehouse storage (for indirect delivery)

• Delivery date to warehouse
• Date of issue from warehouse

5. Sales logistics

• Delivery costs
• Customs costs

6. Other expenses upon sale

• Intermediary
• ……………

7. Sale

• Buyer
• Sale amount
• Payment received date

As a result of recording purchase and sale transactions in the accounting system, we obtain a database of elements that allows us to conduct an in-depth analysis of the trading activity of an enterprise for a certain period or a specific transaction.

Analysis of transaction elements:

1. Cost Analysis

In addition to the amount parameters, the system records the time parameters of each movement of funds.

A trade transaction represents the movement of goods and services, as well as the counter movement of funds to pay for them. The proposed method of analyzing transactions involves analyzing exclusively the movement of funds.

In this way:

The effectiveness of the transaction is determined by the margin of return of funds related to a certain period of time (a monthly base is proposed) - i.e. Redacted Percent. In other words, for each transaction the efficiency of using funds in the Money-Product-Money cycle is calculated´(prime).

The transaction is assessed by analyzing the cost of funds over time during periods of “disposal of funds.” The assessment of funds over time is carried out on the basis of the financing interest rate accepted at the enterprise.

The completion of a purchase transaction with subsequent sale is accompanied by cash flow. When paying funds to the seller, the company finances the purchase of goods for a certain period. Financing also occurs when the costs associated with the purchase and sale are paid. 

The point of the method is not in the analysis of income and expenses, but in assessing the efficiency of the circulation of funds in the Money-Product-Money scheme´(prime) based on the time value of money (cost of financing).

To calculate the cost of funds over time, it is necessary to indicate the time period for using the funds. The first date is the date of payment or receipt of funds. The second date can be any (from a mathematical point of view) date in time, but it will be clearer and more logical to accept the date of the transaction. All time periods of the same transaction will have the same end point (the date of the transaction). When financing expenses, we take into account the cost of funds over time with a minus. The time value of funds received into the account is taken into account with a positive sign. In this case, payment to the supplier after the transaction date and payment by the buyer before the transaction date change the sign of the cost of funds over time to the opposite (we will look at examples below). Thus, the analysis considers the actual dates of the movement of funds, and not contractual ones.