Ratio analysis

Ratio analysis is a tool used by business owners, managers, and financiers to evaluate the effectiveness of their operations. References are calculated by comparing two or more financial data points about the company. These numbers are typically culled from the company’s income and balance sheets.

An internal (within a company) as well as an external comparison can be made using ratio analyses. Trends over time can be identified by comparing current or previous results.

A liquidity ratio (the ability to convert short-term assets into cash) is one of the three most common types of ratio analysis (the ability to pay current debt charges and incur new debt). Debt) and financial success (the productive use of company assets to create value). Liquidity as a percentage of assets.

Assets (cash and accounts receivable) are compared to current liabilities to determine the relative liquidity ratio. The ability of a company to pay its bills on time is one of the six basic calculations used to determine short-term liquidity.

Short-term liquidity is best measured using the relative liquidity ratio.

The following is the math formula:

(cash + accounts receivable) / current liabilities / available and realisable assets

To calculate this ratio, divide the total amount owed by the total amount owed by the business. A company’s relative liquidity ratio should be at least one to one. Increasing available and achievable assets is a priority for any company with a relative liquidity ratio below 1:1. For example, it could increase sales by providing discounts; collect receivables; or ask shareholders to invest more money in the company (possibly with special terms for prepaying).

The overall liquidity ratio.

  • To determine a company’s overall liquidity, the current assets are divided by the current liabilities. Short-term liquidity, or a company’s ability to pay its bills on time, can be calculated in six ways.
  • The general liquidity ratio is a straightforward calculation:
  • Total current assets minus total current liabilities is known as the general liquidity ratio (GLR).
  • Liquidity ratios of 1.70 to 2.0 are the norm for most companies.

In financial analysis, a ratio is a number or percentage. An income statement, a balance sheet, or stock market data can give rise to it by dividing two items. This metric can be used to evaluate a company’s current situation, its evolution, or to compare it to other businesses in the same industry. The profitability, cost structure, liquidity, solvency, financial balance, and even productivity of a company can all be gleaned from the ratio. Divide current liabilities by current assets, for example, to get the general liquidity ratio. It is a useful tool for determining a company’s short-term ability to pay back its debts. The company is solvent if this number is greater than 1.

Ratios can be classified into a number of families. According to their practicality, approximately one hundred financial ratios can be divided into five families:

  • Yield, profitability
  • Margin ratios (based on the income statement) are all examples of structure ratios that can be used to better understand a company.
  • Ratios of financial stability (based on the balance sheet )
  • Debt-to-equity, solvency, and liquidity ratios
  • Ratios of the stock market

Non Performing Loan

According to the official European definition, non-performing loans are those for which interest payments have ceased for a period of at least 90 days. As a result of this, the likelihood of the borrower defaulting on a loan rises as this situation continues.

No longer only is the lending bank no longer compensated, but due to the increased default risk of the bank’s counterparty (the borrower), the bank must strengthen its provisions. Consequently, the ability of the banking sector to support the financing of the economy is hindered by this mechanical limitation (especially in Europe where the banks participate very largely in the financing of companies).

The bank must make provisions (accounting obligation) and potentially set aside more equity (regulatory obligation) if a loan is not or no longer repaid, which reduces its ability to provide new loans; if the amount of bad debts is too high, the bank’s profitability is reduced, which can pose problems for its economic survival and harm the confidence placed in it by its financial partners.

A sharp increase in these loans occurred following the financial crisis of 2008; however, these loans have been steadily decreasing since then (but slowly according to the authorities). In spite of the fact that they are large (in the region around 780 billion euros, i.e. several percentage points of European GDP), these loans are concentrated in a few countries (Greece, Italy, etc.) and in a few types of institutions (banks).

Problems persist due to the high level of non-performing loans:

An impediment to bank profitability due to increased administrative costs and financing costs; Provisioning requirements that weigh on equity levels; A risk to banks’ viability from the high levels of non-performing loans. An impediment to monetary policy transmission and financing due to the immobilisation of capital to guarantee unproductive assets.

The European Council of July 11, 2017, adopted an action plan that led to the adoption of a package of measures by the European Commission on March 14, 2018, in an attempt to stem or, at the very least, limit this phenomenon. A new set of guidelines issued by the European Banking Authority (EBA) in October 2018 (effective June 30, 2019) will help banks better understand the loans they hold.

The following are some of the measures’ stated goals:

Underprovisioning can be avoided if automatic provisioning practises with deadlines are used; privileged creditors can be better protected; and non-performing loans can be sold on secondary markets.

We recognise the significance of eradicating these NPLs in light of the current situation. To put it another way, it makes sense to think of the PNP as being somewhere between zero and one hundred percent of the amount of money that should be reimbursed.

In this way, any financial institution can aim to:

To begin, banks must ensure that they are complying with IAS / IFRS accounting rules, which states that banks must not only provide from an accounting perspective but also from a prudential one. In order to do this, they use internal models that are based on the book value of a PNP, which is obtained by realising a discounted sum of the probable value of future reimbursements, it being specified that this value also depends on the cos. In terms of unsecured loans, the ECB’s expectations and the European Commission’s proposals are very similar: After two years of being classified as “non-performing,” a provision of 100% is expected; for secured loans, differences remain, so securitization may be necessary. Securitization is a financial technique that involves selling the NPLs in the secondary market to investors by transforming these illiquid debts into financial securities that are easily exchangeable and therefore liquid on the c-market; this technique is called “securitization.” Two types of securitizations are available to investors: the traditional one, where the bank continues to manage the credit, but no longer bears risk, and the synthetic one, where credit is transferred, but no credit is transferred. ‘assets’ are realised through a credit derivative; several factors contribute to a valuation (pricing) higher or lower NPLs in the context of securitization or, more generally, of a sale on a secondar basis. If you’d like to clear your bank’s balance sheet, you’ll need to sell PNPs at a discount of 10% to 50% of their initial value; – finally, to set up a defeasance structure, which is the last resort to do so; in order to protect the financial interests of the banking sector, these structures are typically established following a public decision that seeks to remove risky assets from the balance sheet An asset management company (SGA) acquires and manages previously valued PNPs in order to avoid a bail-in risk. More than two dozen SGAs have been set up since 2008 to assist banks in difficulty with the sale of risky assets; in practise, a defeasance structure is an asset management company (SGA).

Financing Of Marketing

To achieve the goals of marketing, the implementation of marketing activities, enterprises must find funds to finance their own marketing program. It can be either own or borrowed funds.

Before finding the required amount, it is necessary to calculate the level of expenses for each area of ​​marketing policy and strategy. This data is reflected in individual budget lines, first in the preliminary marketing program, and then in the marketing business plan, which becomes a binding document.

Obtaining a loan involves the risk of non-repayment of funds if the expectation of receiving a certain level of income from investments made on the basis of the loan has not been justified. This can lead to re-borrowing. This process can be repeated several times and then the enterprise will find itself in a “usurious stranglehold”.

In the sacred books: the Koran, the Bible and others, usury is directly condemned, considered as one of the greatest socio-economic evils. Only the Jewish Talmud – not holy scripture, but a collection of human interpretations of the Bible – calls on the Jews to give growth to strangers, but not to give to their fellow tribesmen.

The use of only the company’s own funds only limits its investment opportunities.

To determine exactly how much funds are required to achieve the goals, a preliminary analysis of the ratio of marketing costs and its economic effect is carried out. This analysis will allow attracting sufficient, but not excessive amount of funds.

Typically, the analysis of the costs of marketing activities is carried out in the following three stages:

• Analysis of financial statements. A comparison is made of receipts or sales of products with the costs of producing and promoting goods or services.

• Recalculation of the costs incurred for each marketing function: research, advertising, planning, control,


The basis for ensuring the financial side of the marketing program is the analysis of the estimated costs of collecting, analyzing, processing information about the markets and forecasting their capacity.

When planning and conducting marketing research, you need to focus on collecting only really necessary information. Often, companies collect, process and store huge amounts of data that are completely unused in the activities of the department or marketing specialists of the enterprise.

An example of the high cost of collecting marketing information is product life cycle analysis. Moreover, it can be a completely different life cycle in a wide variety of markets and their segments. The external market of any foreign state and the internal market, the market of the central region of the country and its peripheral regions, the prestigious segment and the mass one, and so on can be strikingly different.

Equally difficult is the question of the price level.

Price is the only marketing element that generates revenue. All other elements entail costs, being in fact designed to work to ensure that the price can be optimal for the enterprise in terms of the current strategy. Therefore, we say that the prices and pricing of the company occupy a special place in the marketing system.

Another area for analysis is advertising, sales promotion, customer service. It is especially difficult to assess these areas of marketing work, since a lot in this area is based on psychological nuances, which, of course, cannot be accurately quantified (financial).

These difficulties are superimposed on the difference in psychology, mentality of people of a given country and foreign ones, if a company seeks to enter foreign markets with its product.

The provision of services to consumers, both related to material objects and not related, is characterized by an extreme variety of acceptable options that have different effectiveness. Sometimes, product service translates into a specific line of business.

The question of determining the effectiveness of certain channels of product distribution is complicated.

Economic and organizational support for the company’s marketing plan is also associated with the training of its own staff or the involvement of independent organizations specializing in any areas of marketing. Even before starting activities in any direction, the enterprise must clearly define where and how the training of personnel or their professional development will be carried out.

In essence, all marketing is based on the information available, specially organized. An enterprise can obtain the necessary information on the side, from firms that are specially engaged in its collection, further processing, analysis, but this information can be too expensive. It is better to use it only when there is no way to do marketing research on your own and is significantly cheaper.

Rationally share the cost of obtaining the necessary information with some partners. Or collect information separately, but so that everyone is engaged in their own direction of research, and then all the data obtained is processed and used together.

In any case, the main difficulty lies in determining the costs of various activities. But in this matter, you can focus on the traditional level of prices in this industry, or conduct strict forecasting and cost accounting for each direction.