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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Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 1/2019
„ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007
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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Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 1/2019
„ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007
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%
Number of rotations% 1,81 5,90 4,09 325,97% 225,97%
The duration of a rotation
(expressed in days)
198 57 - 141 28,79% - 71,21%
Source: authoring, on the basis of the annual financial statements for the period 2016-2017
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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Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 1/2019
„ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007
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
Number of rotations% 1,50 2,42 0,92 161,33% 61,33%
The duration of a rotation
(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
The duration of a rotation
(expressed in days)
1 3 2 300% 200,%
Claims 904.093 1.016.053 111.960 112,38% 12,38%
Number of rotations% 1,71 3,79 2,08 221,64% 121,64%
The duration of a rotation
(expressed in days)
210 95 -115 45,23% -54,77%
Source: authoring, on the basis of the annual financial statements for the period 2016-2017
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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Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 1/2019
„ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007
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%
Number of rotations% 1,11 2,97 1,86 267,57% 167,57%
The duration of a rotation
(expressed in days)
323 121 -202 37,46% -62,54%
Personal capital 332.877 673.700 340.823 202,38% 102,38%
Number of rotations% 4,65 5,71 1,06 122,80% 22,80%
The duration of a rotation
(expressed in days)
77 63 -14 81,82% -18,18%
Source: authoring, on the basis of the annual financial statements for the period 2016-2017
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
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Analysis and Operational Financial Management, Ed. Economică, Bucharest, 2003;
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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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Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 1/2019
„ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007
6. Păvăloaia W., Paraschivescu M.D., Olaru G.D., Radu F., - Financial analysis. Case studies,
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