SJPT: SG Red flags analysis
|June 17, 2012||Posted by Administrator under Finansijska pozicija preduzeća, z Draženko Lukač|
A number of financial scandals that have occurred in recent times were usually followed by manipulation of the financial statements. This only confirms the importance of information in financial statements. That they are not important there would be no need State regulations and the accounting profession in the developed countries reacted by trying to build a better institutional framework for financial reporting which is characteristic above all to strengthen the supervisory role state over financial reporting practices.
In addition to standard financial analysis, financial analysts are increasingly used by some non-standard methods, which can be good indicators warning of the existence of creative accounting practices. Practical experience has developed a specific benchmark values that indicate the need for additional research if the values of the studied indicators warn to avoid making wrong business decisions.
In addition to warning indicators of financial quantitative analysts use the so-called, qualitative warning indicators that describe the events and activities that may indicate the possibility of creative financial reporting.
RED FLAGS RATIOS
|Balance of risk indicators||2009||2010||2011||Red Flag|
|Ability to create cash flow for debt repayments in 000 RSD||2,036,781||5,500,227||173,581||Negative operating cash flow|
|Abilty to finance capital expenditure||2,99||16,23||0,10||Significantly less than 1 possible disruption of financial structure|
|Abilty to finance capital expenditure and dividends||2,99||16,23||0,10||Same cautions|
|Impact of transactions on the financial structure||0,70||0,65||0,71||Faster growth of borrowed resources in relation to its own leads to disruption of financial structure|
|Quality Revenue Ratio||1,24||1,23||1,17||Risk increase with decrease of this ratio|
|Quality of Earnings Ratio||0,88||0,35||8,29||Risk increases with a significant deviation from 1|
|Debt to equity||1,10||0,71||0,51||Greater than 1 increases the degree prudence|
|Ratio of net tangible assets %||89,11||137,12||192,59||Less than 25|
|Ability to pay interest %||33,18||75,38||256,74||Less than 50|
|Abiliity to pay interest %||1,95||3,80||17,19||Less than 25|
|Hidden losses in Accounts & Notes Receivable %||35,61||32,51||30,80||Greater than 15|
|Hidden losses in inventories %||56,45||48,10||43,89||Greater than 25|
|Company’s ability to achieve returns||2,33||1,91||1,62||If ROA is approaching cost of capital and ROE, it’s a warning sign, as well as if ROA and ROE are lower than competitors and industry averages|
|Estimating transitory elements in yields %||-0,09||-0,65||-0,53||Take into account the transitory gains|
|Attractiveness of the expected earnings – P/B ratio||1,41||1,08||0,65||If both indicator are low expected earnings are less than the current and vica versa|
|Attractiveness of the expected earnings – P/E ratio||25,99||28,64||5,46|