Реферат Financial analysis of annual reports of KazanOrgSintez
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Financial analysis of annual reports of “KazanOrgSintez”
Financial Accounting Project Work
Baltic State Technical University
International Business and Communication Institute
Masters of Business Administration & Engineering (MBAE)
Max Gashnikov
2008
Table of Contents
Introduction. 3
Theory. 3
Overview of the company. 3
Main parameters of activity. 3
Comparison balance sheet for 3 years. 3
Horizontal analysis of balance sheet for 2004. 3
Vertical analysis of balance sheet for 2004. 3
Notes to analysis of balance sheet for 2004. 3
Horizontal analysis of balance sheet for 2005. 3
Vertical analysis of balance sheet for 2005. 3
Notes to analysis of balance sheet for 2005. 3
Horizontal analysis of balance sheet for 2006. 3
Vertical analysis of balance sheet for 2006. 3
Notes to analysis of balance sheet for 2006. 3
Horizontal analysis of income statement for 2006/2005. 3
Vertical analysis of income statement for 2006/2005. 3
Horizontal analysis of income statement for 2005/2004. 3
Vertical analysis of income statement for 2005/2004. 3
Notes to analysis of income statement. 3
Analysis of financial ratios. 3
Analysis of financial condition. 3
Analysis of bankruptcy opportunity. 3
Analysis of financial stability. 3
Analysis of business activity. 3
Analysis of profitability. 3
Conclusion. 3
References. 3
Introduction
A man has always dreamt of transformations. Mostly the latter occurred in fairy tales, myths, legends where the talent of transformation was granted to gods and great magicians. The best minds devoted their lives to discovery of the Philosopher’s stone – a key to transformation of one substance into another. In the course of the researches were made the greatest discoveries in many fields of science, yet the Philosopher’s stone did not become the property of the mankind.
In the twentieth century the scientists learned to create new substances with the set physical and chemical properties. Our century is sometimes called a century of plastics. Instead of metal and wood, glass and ceramics more and more often we use polymers. They possess unique qualities and frequently surpass natural materials!
Today the OJSC “Kazanorgsintez” is an enormous production laboratory where the alchemists of the twenty first century are working. Transformation of one substances into others is no magic for them as it was, but a routine business.
The future will open many secrets, that now improbable matters will be possible. And the search of the Philosopher’s stone never stops.
The world today is the technocratic world. The concept of progress is connected with the science and technics development process and technology development. And in this world organic chemistry takes the special place of one of the “future sciences”.
Today polymeric materials pretend for domination in all fields of the human life, from the large-scale constructions and outer-space exploration to the household field. It becomes obvious in the moment of acquaintance with the number of facts based on the real projects and inventions, which are still considered as the Future technologies, but can be realized at the favorable conditions in the nearest future. One of the basic components of each of the mentioned inventions is the use of these or those kinds of polymeric materials.
Organic chemistry, starting with the direction of modern society development, becomes the original arm of forming not only new technologies but also new science-technical and design thinking. Even the scientists of the 20th years of the XXth century told that such time will come. And we fall to live during the time when these brave forecasts come true!
Theory
Financial analysis is the computation of analytical ratios from financial statements and interpretation of these ratios to determine their trends as a basis for management decisions. You can also say that it is a systematic use of accounting information in order to investigate the financial situation of a firm. During such analysis an assessment of viability, stability and profitability of a business is undertaken.
The overall objective of financial statement analysis is the examination of a firm’s financial position and returns in relation to risk. This must be done with a view to forecasting the firm’s future prospective.
In the following analysis two financial statements will be used: balance sheet and income statement. The balance sheet is summary of the financial position at a specific point in time. It presents the economic resources of an organization and the claims against those resources. An income statement reports the organization’s financial performance over a specified period of time. It summarizes all revenue earned and expenses incurred during a specified accounting period. An institution prepares an income statement so that it can determine its net profit or loss (the difference between revenue and expenses).
Several methods of performing financial statement analysis exist. In this work, two methods are presented: horizontal analysis and vertical analysis. Methods of financial statement analysis generally involve comparing certain information.
The horizontal analysis compares specific items over a number of accounting periods. These comparisons are performed in one of two different ways:
· Absolute units. This method of performing the horizontal financial statement analysis compares the absolute unit amounts of certain items over a period of time. This method is valuable when trying to determine whether a company is conservative or excessive in spending on certain items. This method also aids in determining the effects of outside influences on the company, such as increasing gas prices or a reduction in the cost of materials.
· Percentage. This is the other method of performing the financial statement analysis which compares the percentage difference in certain items over a period of time. Such percentages are calculated by selecting a base year and assign a weight of 100 to the amount of each item in the base year statement. Thereafter, the amounts of similar items or groups of items in prior or subsequent financial statements are expressed as a percentage of the base year amount. The resulting figures are called index numbers or trend ratios.
The horizontal analysis is conducted by setting consecutive financial statements side-by-side and reviewing changes in individual categories on year-to-year basis. The most important item revealed by such comparative financial statement analysis is trend. A comparison of statements over several years reveals direction, speed and extent of a trend.
The vertical analysis compares each separate figure to one specific figure in the financial statement. The comparison is reported as a percentage. This method compares several items to one certain item in the same accounting period. Users often expand upon vertical analysis by comparing the analyses of several periods to one another.
Overview of the company
OJSC “Kazanorgsintez” is one of the largest enterprises in the chemical industry of Russia, located in the capital of Tatarstan Republic, in Kazan. The enterprise is founded in 1958. In 1963 the first batch of products – phenol and acetone was produced.
Now the enterprise produces polyethylene, polyethylene pipes, phenol, acetone, ethylene glycol, ethanolamines and other products of organic synthesis, the total assortment includes more than 170 denominations with a total production volume over 1 mln. tons. Products correspond to the international quality standards of GOST R ISO 9001-2001 (ISO 9001:2000) and are exported to many countries of the world.
OJSC «Kazanorgsintez» includes six plants and the auxiliary divisions located on one industrial platform with a total area of 4.2 sq.km., and possessing uniform transport, power and telecommunication infrastructure:
At the time, the following plants are getting ready for commissioning:
Since 1999 activity is carried out according to the world standards ISO 9000. In 2006, Ecological Management System ISO 14001:2004 and Integrated Quality Management System ISO 9001 and ISO
14001 have been certificated in OJSC “Kazanorgsintez”.
The revenues from product sales according to the results of 2006 have made 15,5 bln. rubles, net profit – 2,2 billion rubles. Number of personnel came to more than 8000 employees. Credit ratings according to Standard and Poor’s agency – “В-“, Fitch Ratings agency – “B”. The outlook on ratings is “stable”.
Within the framework of the development program realization the capital investments of 10,4 bln. rubles have been financed in 2006.
Company’s strategy:
1. Realization of Development Program for increasing the capacities of existing products and production the new ones.
2. Increasing production with the high added value.
3. Increasing efficiency by optimization the parity of internal and export sales.
4. Diversification of the raw-material base.
5. Reduction the expenses under the saving resources program.
6. Diversification of the financing base.
Main parameters of activity
| № | Parameter | Units | 2004 | 2005 | 2006 |
| 1 | Commodity output | mln. RUB | 11 870,4 | 13 597,0 | 15 771,2 |
| | Cost price | mln. RUB | 8 823,7 | 10 367,6 | 12 066,5 |
| | Index of physical volume | % | 100,4 | 92,2 | 104,3 |
| 2 | Revenues from sale | mln. RUB | 11 787,8 | 13 328,6 | 15 517,7 |
| | Including export | | 2 928,3 | 2 710,1 | 2 815,2 |
| | Cost price | | 8 743,8 | 9 985,1 | 11 735,5 |
| | Profit | | 3 044,0 | 3 343,5 | 3 782,2 |
| | Profitability | % | 25,8 | 25,1 | 24,4 |
| 3 | Taxes (calculated) | mln. RUB | 1 839,2 | 1 696,0 | 34,2 |
| 4 | Net profit | mln. RUB | 1 981,6 | 2 002,1 | 2 209,0 |
| 5 | Amortization | mln. RUB | 308,1 | 392,9 | 586,6 |
| 6 | Own capital | mln. RUB | 7 676,9 | 9 257,6 | 11 120,2 |
| 7 | Capital investments | mln. RUB | 1 437,9 | 5 169,2 | 11 467,6 |
| 8 | Financing of capital investments | mln. RUB | 1 114,7 | 7 061,2 | 10 382,0 |
| 9 | Liabilities (total debt) | mln. RUB | 1 300,3 | 7 065,2 | 16 968,5 |
| 10 | Accounts receivable | mln. RUB | 966,4 | 2 880,4 | 3 476,1 |
| 11 | Average personnel number | employees | 7 061 | 7 607 | 8 072 |
| 12 | Average salary | RUB / month | 12 181 | 15 463 | 16 739 |
In 2006 commercial output in amount of 15,771 mln. rubles was produced, that is by 16 % more than in 2005. The gain is basically received due to rise in prices by 11.7 %. Production in physical terms has increased by 4.3 %. In the year of 2006 the reconstruction was held in the phenol-acetone, LDPE and HDPE production units. Nevertheless, the percent of use of capacities has increased by 4 % comparing to 2005 and has made 73.2 %. The general capacities increased by 1.2 % and have made by the beginning of 2006, 1,240 thousand of tons of organic synthesis products.
Comparison balance sheet for 3 years
(thousand rubles)
| ASSETS | 01.01.2005 | 01.01.2006 | 01.01.2007 | |
| I. Fixed assets | | | | |
| | Intangible assets | - | - | - |
| | Property, plant and equipment | 3 714 636 | 4 785 222 | 7 605 106 |
| | Construction in progress | 1 471 364 | 4 823 592 | 12 630 151 |
| | Long-term investments | 460 093 | 358 322 | 26 306 |
| | Other fixed assets | 12 185 | 12 832 | 8 611 |
| | Total for part I | 5 658 278 | 9 979 968 | 20 270 174 |
| II. Current assets | | | | |
| | Inventories | 1 839 311 | 2 305 592 | 3 417 758 |
| | VAT recoverable and prepaid | 251 089 | 718 877 | 169 417 |
| | Trade and other accounts receivable | 966 364 | 2 880 417 | 3 476 144 |
| | Short-term investments | 97 112 | 21 672 | - |
| | Cash and cash equivalents | 165 167 | 416 443 | 755 216 |
| | Total for part II | 3 319 043 | 6 343 001 | 7 818 535 |
| TOTAL ASSETS | 8 977 321 | 16 322 969 | 28 088 709 | |
| EQUITY AND LIABILITIES | | | | |
| III. Shareholder’s equity | | | | |
| | Share capital | 1 904 710 | 1 904 710 | 1 904 710 |
| | Treasury stock | (100 077) | - | (46 251) |
| | Additional paid-in capital | 1 853 317 | 1 852 045 | 1 852 045 |
| | Legal reserve | 49 219 | 95 235 | 95 235 |
| | Retained earnings | 3 969 701 | 5 405 629 | 7 314 472 |
| | Total for part III | 7 676 870 | 9 257 619 | 11 120 211 |
| IV. Long-term liabilities | | | | |
| | Long-term borrowings | - | 4 892 425 | 11 850 402 |
| | Deferred tax liabilities | 111 068 | 154 836 | 564 146 |
| | Total for part IV | 111 068 | 5 047 261 | 12 414 548 |
| V. Current liabilities | | | | |
| | Short-term borrowings | 459 277 | 624 158 | 305 759 |
| | Accounts payable | 727 810 | 1 312 683 | 3 943 480 |
| | Advances received from customers | 2 116 | 81 112 | 300 157 |
| | Other current liabilities | 180 | 136 | 4 554 |
| | Total for part V | 1 189 383 | 2 018 089 | 4 553 950 |
| TOTAL EQUITY AND LIABILITIES | 8 977 321 | 16 322 969 | 28 088 709 | |
Horizontal analysis of balance sheet for 2004
(thousand rubles)
| ASSETS | Beginning of reported period | End of reported period | Relative change % | |
| I. Fixed assets | | | | |
| | Intangible assets | - | - | - |
| | Property, plant and equipment | 3 456 639 | 3 714 636 | 7,5 |
| | Construction in progress | 699 281 | 1 471 364 | 110,5 |
| | Long-term investments | 521 123 | 460 093 | (11,7) |
| | Other fixed assets | 8 750 | 12 185 | 39,3 |
| | Total for part I | 4 685 793 | 5 658 278 | 20 ,8 |
| II. Current assets | | | | |
| | Inventories | 921 061 | 1 839 311 | 99,7 |
| | VAT recoverable and prepaid | 202 609 | 251 089 | 23,9 |
| | Trade and other accounts receivable | 899 409 | 966 364 | 07,4 |
| | Short-term investments | 5 379 | 97 112 | 1705,4 |
| | Cash and cash equivalents | 211 479 | 165 167 | (21,9) |
| | Total for part II | 2 239 937 | 3 319 043 | 48,2 |
| TOTAL ASSETS | 6 925 730 | 8 977 321 | 29,6 | |
| EQUITY AND LIABILITIES | | | | |
| III. Shareholder’s equity | | | | |
| | Share capital | 1 904 710 | 1 904 710 | 0 |
| | Treasury stock | - | (100 077) | - |
| | Additional paid-in capital | 1 852 046 | 1 853 317 | 0,07 |
| | Legal reserve | 4 761 | 49 219 | 933,8 |
| | Retained earnings | 2 508 339 | 3 969 701 | 58,3 |
| | Total for part III | 6 269 856 | 7 676 870 | 22,4 |
| IV. Long-term liabilities | | | | |
| | Long-term borrowings | - | - | - |
| | Deferred tax liabilities | 82 110 | 111 068 | 35,3 |
| | Total for part IV | 82 110 | 111 068 | 35,3 |
| V. Current liabilities | | | | |
| | Short-term borrowings | - | 459 277 | - |
| | Accounts payable | 573 377 | 727 810 | 26,9 |
| | Advances received from customers | 164 | 2 116 | 1190,2 |
| | Other current liabilities | 223 | 180 | (19,3) |
| | Total for part V | 573 764 | 1 189 383 | 107,3 |
| TOTAL EQUITY AND LIABILITIES | 6 925 730 | 8 977 321 | 29,6 | |
Vertical analysis of balance sheet for 2004
| ASSETS | Beginning of reported period % | Ending of reported period % | Net change % | |
| I. Fixed assets | | | | |
| | Intangible assets | - | - | - |
| | Property, plant and equipment | 49,9 | 41,3 | (8,6) |
| | Construction in progress | 10,1 | 16,4 | 6,3 |
| | Long-term investments | 7,7 | 5 | (2,7) |
| | Other fixed assets | 0,1 | 0,1 | 0 |
| | Total for part I | 67,8 | 62,8 | (5 ) |
| II. Current assets | | | | |
| | Inventories | 13,1 | 20,6 | 7,5 |
| | VAT recoverable and prepaid | 3 | 2,8 | (0,2) |
| | Trade and other accounts receivable | 13 | 10,8 | (2,2) |
| | Short-term investments | 0,1 | 1,1 | 1 |
| | Cash and cash equivalents | 3 | 1,9 | (1,1) |
| | Total for part II | 32,2 | 37,2 | 5 |
| TOTAL ASSETS | 100 | 100 | | |
| EQUITY AND LIABILITIES | | | | |
| III. Shareholder’s equity | | | | |
| | Share capital | 27,5 | 20,9 | (6,6) |
| | Treasury stock | - | 1,1 | (1,1) |
| | Additional paid-in capital | 26,7 | 19,9 | (6,8) |
| | Legal reserve | 0,1 | 0,5 | 0,4 |
| | Retained earnings | 36,2 | 43,4 | 7,2 |
| | Total for part III | 90,5 | 85,8 | (4,7 ) |
| IV. Long-term liabilities | | | | |
| | Long-term borrowings | - | - | - |
| | Deferred tax liabilities | 1,2 | 1,2 | 0 |
| | Total for part IV | 1,2 | 1,2 | 0 |
| V. Current liabilities | | | | |
| | Short-term borrowings | - | 5,08 | 5,08 |
| | Accounts payable | 8,3 | 7,9 | (0,4) |
| | Advances received from customers | 0 | 0,02 | 0,02 |
| | Other current liabilities | 0 | 0 | 0 |
| | Total for part V | 8,3 | 13 | 4,7 |
| TOTAL EQUITY AND LIABILITIES | 100 | 100 | | |
Notes to analysis of balance sheet for 2004
The assets of the enterprise increased in 2004 by 2.051,6 mln. rub. (+29,6%) and were 8.977,3 mln. rub. The increase appeared due to the growth of fixed assets and current assets on 972,5 mln. rub. (+20,8%) and 1.079,1 mln. rub. (+48,2%) correspondingly. In the structure of the balance sheet in the end of 2004 fixed assets took 62,8%, current assets – 37,2%.
Fixed assets
The weight of non-current assets in the total amount of property is 62,8% or 5.658,3 mln. rub. This ratio is typical and normal for chemical enterprises. The main components of fixed assets in the end of the current period are property, plant and equipment (3.714,6 mln. rub.) and the construction in progress (1.417,4 mln. rub.). The most significant change in 2004 happened exactly in the entry “construction in progress”: construction work under two plants (Bisphenol-A and Polycarbonates) were started in the current period, also the modernization of production of Ethylene, HDPE and Phenol was started. All of these are governed by the Development Program for 2004-2008.
Current assets
By the end of 2004 current assets increased on 1.079 mln. rub. and were 3.319 mln. rub., and at the same time its weight in the total amount of assets increase by 5% up to 37,2%. During the whole current period the main components of current assets of the company were Inventories and Accounts receivable. By the end of 2004 the amounts of the mentioned entries were 1.839,3 mln. rub. and 966,4 mln. rub. correspondingly. The inventories almost doubled in 2004, which is mainly caused by purchasing of licenses according to the Development Program of OJSC “Kazanorgsintez”.
Sources of assets formation
During the current period the company did not involve any long-term sources of financing. The investment capital of the Company was formed exceptionally by own funds. And the weight of own capital in the total amount of liabilities decreased from 90,5% down to 85,8%.
Horizontal analysis of balance sheet for 2005
(thousand rubles)
| ASSETS | Beginning of reported period | End of reported period | Relative change % | |
| I. Fixed assets | | | | |
| | Intangible assets | - | - | - |
| | Property, plant and equipment | 3 714 636 | 4 785 222 | 28,8 |
| | Construction in progress | 1 471 364 | 4 823 592 | 227,8 |
| | Long-term investments | 460 093 | 358 322 | (22,1) |
| | Other fixed assets | 12 185 | 12 832 | 5,03 |
| | Total for part I | 5 658 278 | 9 979 968 | 76,4 |
| II. Current assets | | | | |
| | Inventories | 1 839 311 | 2 305 592 | 25,4 |
| | VAT recoverable and prepaid | 251 089 | 718 877 | 186,3 |
| | Trade and other accounts receivable | 966 364 | 2 880 417 | 198,1 |
| | Short-term investments | 97 112 | 21 672 | (77,7) |
| | Cash and cash equivalents | 165 167 | 416 443 | 152,1 |
| | Total for part II | 3 319 043 | 6 343 001 | 91,1 |
| TOTAL ASSETS | 8 977 321 | 16 322 969 | 81,8 | |
| EQUITY AND LIABILITIES | | | | |
| III. Shareholder’s equity | | | | |
| | Share capital | 1 904 710 | 1 904 710 | 0 |
| | Treasury stock | (100 077) | - | - |
| | Additional paid-in capital | 1 853 317 | 1 852 045 | (0,07) |
| | Legal reserve | 49 219 | 95 235 | 93,5 |
| | Retained earnings | 3 969 701 | 5 405 629 | 36,2 |
| | Total for part III | 7 676 870 | 9 257 619 | 20,6 |
| IV. Long-term liabilities | | | | |
| | Long-term borrowings | - | 4 892 425 | - |
| | Deferred tax liabilities | 111 068 | 154 836 | 39,4 |
| | Total for part IV | 111 068 | 5 047 261 | 4444,3 |
| V. Current liabilities | | | | |
| | Short-term borrowings | 459 277 | 624 158 | 35,9 |
| | Accounts payable | 727 810 | 1 312 683 | 80,4 |
| | Advances received from customers | 2 116 | 81 112 | 3733,3 |
| | Other current liabilities | 180 | 136 | (24,4) |
| | Total for part V | 1 189 383 | 2 018 089 | 69,8 |
| TOTAL EQUITY AND LIABILITIES | 8 977 321 | 16 322 969 | 81,8 | |
Vertical analysis of balance sheet for 2005
| ASSETS | Beginning of reported period % | Ending of reported period % | Net change % | |
| I. Fixed assets | | | | |
| | Intangible assets | - | - | - |
| | Property, plant and equipment | 41,3 | 29,3 | (12) |
| | Construction in progress | 16,4 | 29,5 | 13,1 |
| | Long-term investments | 5 | 2,1 | (2,9) |
| | Other fixed assets | 0,1 | 0,1 | 0 |
| | Total for part I | 62,8 | 61 | (1,8 ) |
| II. Current assets | | | | |
| | Inventories | 20,6 | 14,2 | (6,4) |
| | VAT recoverable and prepaid | 2,8 | 4,4 | 1,6 |
| | Trade and other accounts receivable | 10,8 | 17,7 | 6,9 |
| | Short-term investments | 1,1 | 0,1 | (1) |
| | Cash and cash equivalents | 1,9 | 2,6 | 0,7 |
| | Total for part II | 37,2 | 39 | 1,8 |
| TOTAL ASSETS | 100 | 100 | | |
| EQUITY AND LIABILITIES | | | | |
| III. Shareholder’s equity | | | | |
| | Share capital | 20,9 | 11,5 | (9,4) |
| | Treasury stock | 1,1 | - | (1,1) |
| | Additional paid-in capital | 19,9 | 11,9 | (8) |
| | Legal reserve | 0,5 | 0,1 | (0,4) |
| | Retained earnings | 43,4 | 33,8 | (9,6) |
| | Total for part III | 85,8 | 57,3 | (28,5 ) |
| IV. Long-term liabilities | | | | |
| | Long-term borrowings | - | 30 | 30 |
| | Deferred tax liabilities | 1,2 | 0,1 | (1,1) |
| | Total for part IV | 1,2 | 30,1 | 28,9 |
| V. Current liabilities | | | | |
| | Short-term borrowings | 5,08 | 3,9 | (1,18) |
| | Accounts payable | 7,9 | 8,1 | 0,2 |
| | Advances received from customers | 0,02 | 0, | (0,02) |
| | Other current liabilities | 0 | 0,6 | 0,6 |
| | Total for part V | 13 | 12,6 | (0,4 ) |
| TOTAL EQUITY AND LIABILITIES | 100 | 100 | | |
Notes to analysis of balance sheet for 2005
The assets of the company increased in 2005 by 7.346 mln. rub. (+81,2%) and were 16.323 mln. rub. The increase happened due to the growth of fixed assets and current assets by 4.322 mln. rub. (+76,4%) and 3.024 mln. rub. (+91,1%) correspondingly. In the structure of the balance sheet in the end of 2005 fixed assets took 61%, current assets – 39%.
Fixed assets
By the end of the analyzed year the basic components of non-current assets were property, plant and equipment (4.785 mln. rub.) and construction in progress (4.824 mln. rub.). The value of property, plant and equipment increase by 28,8%. Thus growth was influenced by finished modernization of production, which was in the Development Program for 2004-2008гг. The growth of construction in progress in 2005 was by 227,8% up to 4.824 mln. rub. This is also explained by the realization of investment program.
Current assets
By the end of 2005 current assets increase by 3.024 mln. rub. and were 6.343 mln. rub., at the same time the weight of these assets in the whole amount of property increased by 1,8% up to 39%. The main components of current assets in the current period were Inventories and Accounts receivable.In the end of 2005 the amount of the mentioned entries were 2.306 mln. rub. and 2.880 mln. rub. correspondingly. The direction of the enterprise follows a monthly control over the formation of Accounts receivable. Accounts receivable are separated by the types activities on current and investing. From the beginning of the year the accounts receivable for current activities increased by 13%, and the increase for investing activities was in 9,9 times. All in all, accounts receivable increased in 3 times during 2005, which is mainly caused by the advances given to equipment suppliers and contractors according to realization of investment program. Inventories grew by 25,4% during 2005.
Sources of assets formation
The basic sources of assets formation of the enterprise by the 1st January 2006 were own funds (9.258 mln. rub.) and long-term liabilities (5.047 mln. rub.). During the current period, the weight of own capital in the whole amount of liabilities decreased from 85,8% down to 57,3% as the company took long-term borrowings for financing the Development Program. Investing capital (the total of own funds and long-term borrowings), which was previously formed exceptionally by own funds, now also includes the borrowed capital. The increase of borrowed funds in sources of assets formation means that financial independence has fallen, and consequently that financial risks have risen.
Horizontal analysis of balance sheet for 2006
(thousand rubles)
| ASSETS | Beginning of reported period | End of reported period | Relative change % | |
| I. Fixed assets | | | | |
| | Intangible assets | - | - | - |
| | Property, plant and equipment | 4 785 222 | 7 605 106 | 58,9 |
| | Construction in progress | 4 823 592 | 12 630 151 | 161,8 |
| | Long-term investments | 358 322 | 26 306 | (92,7) |
| | Other fixed assets | 12 832 | 8 611 | (32,9) |
| | Total for part I | 9 979 968 | 20 270 174 | 103,1 |
| II. Current assets | | | | |
| | Inventories | 2 305 592 | 3 417 758 | 48,2 |
| | VAT recoverable and prepaid | 718 877 | 169 417 | (76,4) |
| | Trade and other accounts receivable | 2 880 417 | 3 476 144 | 20,68 |
| | Short-term investments | 21 672 | - | - |
| | Cash and cash equivalents | 416 443 | 755 216 | 81,4 |
| | Total for part II | 6 343 001 | 7 818 535 | 23,3 |
| TOTAL ASSETS | 16 322 969 | 28 088 709 | 72,1 | |
| EQUITY AND LIABILITIES | | | | |
| III. Shareholder’s equity | | | | |
| | Share capital | 1 904 710 | 1 904 710 | 0 |
| | Treasury stock | - | (46 251) | - |
| | Additional paid-in capital | 1 852 045 | 1 852 045 | 0 |
| | Legal reserve | 95 235 | 95 235 | 0 |
| | Retained earnings | 5 405 629 | 7 314 472 | 35,3 |
| | Total for part III | 9 257 619 | 11 120 211 | 20,1 |
| IV. Long-term liabilities | | | | |
| | Long-term borrowings | 4 892 425 | 11 850 402 | 142,2 |
| | Deferred tax liabilities | 154 836 | 564 146 | 264,4 |
| | Total for part IV | 5 047 261 | 12 414 548 | 146 |
| V. Current liabilities | | | | |
| | Short-term borrowings | 624 158 | 305 759 | (51) |
| | Accounts payable | 1 312 683 | 3 943 480 | 200,4 |
| | Advances received from customers | 81 112 | 300 157 | 270,1 |
| | Other current liabilities | 136 | 4 554 | 3248,5 |
| | Total for part V | 2 018 089 | 4 553 950 | 125,7 |
| TOTAL EQUITY AND LIABILITIES | 16 322 969 | 28 088 709 | 72,1 | |
Vertical analysis of balance sheet for 2006
| ASSETS | Beginning of reported period % | Ending of reported period % | Net change % | |
| I. Fixed assets | | | | |
| | Intangible assets | - | - | - |
| | Property, plant and equipment | 29,3 | 27,2 | (2,1) |
| | Construction in progress | 29,5 | 45,3 | 15,8 |
| | Long-term investments | 2,1 | 0,1 | (2) |
| | Other fixed assets | 0,1 | 0 | (0,1) |
| | Total for part I | 61 | 72,6 | 11,6 |
| II. Current assets | | | | |
| | Inventories | 14,2 | 12,2 | (2) |
| | VAT recoverable and prepaid | 4,4 | 0,1 | (4,3) |
| | Trade and other accounts receivable | 17,7 | 12,4 | (5,3) |
| | Short-term investments | 0,1 | - | (0,1) |
| | Cash and cash equivalents | 2,6 | 2,7 | 0,1 |
| | Total for part II | 39 | 27,4 | (11,6 ) |
| TOTAL ASSETS | 100 | 100 | | |
| EQUITY AND LIABILITIES | | | | |
| III. Shareholder’s equity | | | | |
| | Share capital | 11,5 | 6,7 | (4,8) |
| | Treasury stock | - | 0,2 | 0,2 |
| | Additional paid-in capital | 11,9 | 6,5 | (5,4) |
| | Legal reserve | 0,1 | 0,3 | 0,2 |
| | Retained earnings | 33,8 | 26 | (7,8) |
| | Total for part III | 57,3 | 39,7 | (17,6) |
| IV. Long-term liabilities | | | | |
| | Long-term borrowings | 30 | 42,1 | 12,1 |
| | Deferred tax liabilities | 0,1 | 2 | 1,9 |
| | Total for part IV | 30,1 | 44,1 | 14 |
| V. Current liabilities | | | | |
| | Short-term borrowings | 3,9 | 1,1 | (2,8) |
| | Accounts payable | 8,1 | 14 | 5,9 |
| | Advances received from customers | 0, | 1,1 | 1,1 |
| | Other current liabilities | 0,6 | 0 | (0,6) |
| | Total for part V | 12,6 | 16,2 | 3,6 |
| TOTAL EQUITY AND LIABILITIES | 100 | 100 | | |
Notes to analysis of balance sheet for 2006
The assets of the company increased in 2006 by 11.766 mln. rub. (+72,1%) and were 28.089 mln. rub. The increase happened due to increase of fixed assets and current assets by 10.290 mln. rub. (+103,1%) and 1.476 mln. rub. (+23,3%) correspondingly. In the structure of the balance sheet in the end of 2006 fixed assets took 72,6%, current assets – 27,4%.
Fixed assets
By the end of the analyzed period the basic components of non-current assets were property, plant and equipment (7.605 mln. rub.) and construction in progress (12.630 mln. rub.). The value of property, plant and equipment increased by 58,9%. The value of construction in progress during 2005 increased by 161,88%. The growth in the numbers of these entries has been constant for the last three years and it is influenced by the company’s Development Program for 2004-2008.
Current assets
By the end of 2006 current assets increase by 1.476 mln. rub. and were 7.819 mln. rub., and at the same time the weight of these assets in the whole amount of property decreased by 11,6% down to 27,4%. The main components of current assets for the analyzed period were Inventories and Account payable. By the end of 2006 the value of the mentioned entries was 3.418 mln. rub. (+48,2%) and 3.476 mln. rub. (+20,7%) correspondingly. The increase of Accounts payable was mainly due to the growth of production consignments to customers paid advances for equipment manufacturing for plants under construction.
Sources of assets formation
The basic sources of assets formation of the enterprise by the 1st January 2007 were own funds (11.120 mln. rub.) and long-term liabilities (12.415 mln. rub.). During the current period the weight of own capital in the whole amount of liabilities decrease from 57,3% down to 39,7%. This is connected to the fact that OJSC “Kazanorsintez” took the Euroonligations borrowings for financing its investment program.
Horizontal analysis of income statement for 2006/2005
(thousand rubles)
| Entry name | For current period | For the same period in previous year | Relative change % |
| PROFITS AND LOSSES ON OPERATING ACTIVITIES | | | |
| Sales | 15 517 680 | 13 328 636 | 16,42 |
| Cost of sales | (10 039 117) | (8 497 132) | (18,15) |
| Gross profit | 5 478 563 | 4 831 504 | 13,39 |
| Selling expenses | (302 110) | (431 757) | 30,03 |
| Administrative expenses | (1 394 229) | (1 056 539) | (31,96) |
| Profit (loss) on sales | 3 782 224 | 3 343 508 | 13,12 |
| OTHER PROFITS AND LOSSES | | | |
| Interest receivable | 40 050 | 5690 | 603,87 |
| Interest payable | (117 203) | (68 533) | (71,02) |
| Profit from other sales | 5 445 | 7 | 77 785,7 |
| Other operating profits | 1 949 023 | 1 506 757 | 29,35 |
| Other operating expenses | (2 634 108) | (2 154 444) | (22,26) |
| Profit (loss) before income tax | 3 025 431 | 2 632 985 | 14,90 |
| Deferred tax assets | (381) | 88 | (532,95) |
| Deferred tax liabilities | (409 310) | (43 767) | (835,20) |
| Current income tax | (406 750) | (587 184) | 30,73 |
| Profit (loss) for the year | 2 208 990 | 2 002 122 | 10,33 |
Vertical analysis of income statement for 2006/2005
| Entry name | For current period | For the same period in previous year | Net change % |
| PROFITS AND LOSSES ON OPERATING ACTIVITIES | | | |
| Sales | 100 | 100 | - |
| Cost of sales | (64,69) | (63,75) | 0,94 |
| Gross profit | 35,31 | 36,25 | (0,94) |
| Selling expenses | (1,95) | (3,24) | (1,29) |
| Administrative expenses | (8,98) | (7,93) | 1,06 |
| Profit (loss) on sales | 24,37 | 25,09 | (0,71) |
| OTHER PROFITS AND LOSSES | | | |
| Interest receivable | 0,26 | 0,04 | 0,22 |
| Interest payable | (0,76) | (0,51) | 0,24 |
| Profit from other sales | 0,04 | 0,00 | 0,04 |
| Other operating profits | 12,56 | 11,30 | 1,26 |
| Other operating expenses | (16,97) | (16,16) | 0,81 |
| Profit (loss) before income tax | 19,50 | 19,75 | (0,26) |
| Deferred tax assets | 0,00 | 0,00 | 0,00 |
| Deferred tax liabilities | (2,64) | (0,33) | 2,31 |
| Current income tax | (2,62) | (4,41) | (1,78) |
| Profit (loss) for the year | 14,24 | 15,02 | (0,79) |
Horizontal analysis of income statement for 2005/2004
(thousand rubles)
| Entry name | For current period | For the same period in previous year | Relative change % |
| PROFITS AND LOSSES ON OPERATING ACTIVITIES | | | |
| Sales | 13 328 636 | 11 787 768 | 13,07 |
| Cost of sales | (8 497 132) | (7 337 195) | 15,81 |
| Gross profit | 4 831 504 | 4 450 573 | 8,56 |
| Selling expenses | (431 757) | (438 709) | (1,58) |
| Administrative expenses | (1 056 539) | (967 874) | 9,16 |
| Profit (loss) on sales | 3 343 508 | 3 043 990 | 9,84 |
| OTHER PROFITS AND LOSSES | | | |
| Interest receivable | 5 690 | - | - |
| Interest payable | (68 533) | - | - |
| Profit from other sales | 7 | 10 543 | (99,93) |
| Other operating profits | 1 506 757 | 2 765 118 | (45,51) |
| Other operating expenses | (2 154 444) | (3 155 266) | (31,72) |
| Profit (loss) before income tax | 2 632 985 | 2 664 385 | (1,18) |
| Deferred tax assets | 88 | 4 496 | (98,04) |
| Deferred tax liabilities | (43 767) | (28 958) | 51,14 |
| Current income tax | (587 184) | (658 347) | (10,81) |
| Profit (loss) for the year | 2 002 122 | 1 981 576 | 1,04 |
Vertical analysis of income statement for 2005/2004
| Entry name | For current period | For the same period in previous year | Net change % |
| PROFITS AND LOSSES ON OPERATING ACTIVITIES | | | |
| Sales | 100 | 100 | - |
| Cost of sales | (63,75) | (62,24) | 1,51 |
| Gross profit | 36,25 | 37,76 | (1,51) |
| Selling expenses | (3,24) | (3,72) | (0,48) |
| Administrative expenses | (7,93) | (8,21) | (0,28) |
| Profit (loss) on sales | 25,09 | 25,82 | (0,73) |
| OTHER PROFITS AND LOSSES | | | |
| Interest receivable | 0,04 | - | 0,04 |
| Interest payable | (0,51) | - | (0,51) |
| Profit from other sales | 0,00 | 0,09 | (0,09) |
| Other operating profits | 11,30 | 23,46 | (12,16) |
| Other operating expenses | (16,16) | (26,77) | (10,61) |
| Profit (loss) before income tax | 19,75 | 22,60 | (2,85) |
| Deferred tax assets | 0,00 | 0,04 | (0,04) |
| Deferred tax liabilities | (0,33) | (0,25) | 0,08 |
| Current income tax | (4,41) | (5,59) | (1,18) |
| Profit (loss) for the year | 15,02 | 16,81 | (1,79) |
Notes to analysis of income statement
As seen from the tables above OJSC “Kazanorgsintez” has been experiencing annual growth of revenues during the last years. In 2005 this entry increased by 13,07%, and in 2006 – by 16,42%. This may be explained by the fact that the company is following a planned politics of increasing the nomenclature of its production and, therefore, the expanding its sales market.
However, with the growth of revenues the growth of cost of goods, services, and sales is seen as well. This entry changed by 15,81% in 2005 and by 18,15% in 2006.
Certainly, in this situation we can see that the profits of the company are constantly growing as well, but its growth is not that reasonable.
The vertical analysis shows that there were no sever changes in the structure of the Income statement. The main entries of the statement are administrative expenses and other operating expenses. It is worth mentioning that there was a significant change exactly on the other operating expenses entry in 2005, but it is mainly caused by the changes in accounting politics of the company.
Analysis of financial ratios
Analysis of financial condition
| Ratio | 2004 | 2005 | 2006 |
| Own current capital | 2 018 592 | -722 349 | -9 149 963 |
| Own current capital and long-term liabilities | 2 129 660 | 4 324 912 | 3 264 585 |
| Inventories and expenses | 2 090 400 | 3 024 469 | 3 587 175 |
| Financial ratio 1 | -71 808 | -3 746 818 | -12 737 138 |
| Financial ratio 2 | 39 260 | 1 300 443 | -322 590 |
Own current capital (OCC)
An absolute parameter, which is calculated as a difference between shareholder’s equity and fixed assets. Increase of OCC in dynamics is positive tendency, decrease – negative tendency.
OCC = Shareholder’s equity – Fixed assets
As seen in the table, dynamics of this ratio in “Kazanorgsintez” is negative. Furthermore, we can see that this ratio even goes below zero. This means that the company has a shortage of own current capital, so the shareholder’s equity is not enough for financing fixed assets.
Own current capital and long-term liabilities (OCCLTL)
It is calculated as a difference between shareholder’s equity plus long-term liabilities and fixed assets. It is an absolute parameter which characterizes the presence and amount of own current capital, which a company has, but which (unlike short-term liabilities) are not available at any time.
OCCLTL = OCC + Long-term liabilites
Inventories and expenses (IAE)
An absolute parameter, which shows whether a company has inventories and expenses in progress for conducting normal financial and economical activities.
IAE = Inventories + VAT
Financial ratio 1 (F1)
F1 = OCC – IAE
Shows whether OCC is enough for financing IAE
Financial ration 2 (F2)
F2 = OCCLTL – IAE
Shows whether OCCLTL is enough for financing IAE
The analysis of financial ratios F1 and F2 shows that the financial condition of the company may be called as sound. However, the fact that F2 went below zero in 2006 indicates that problems may arise.
Analysis of bankruptcy opportunity
| Ratio | 2004 | 2005 | 2006 |
| Current ratio | 2,79 | 3,14 | 1,72 |
| Own capital security ratio | 0,61 | -0,11 | -1,17 |
| Solvency recovery ratio | 1,59 | 1,86 | 0,79 |
Current ratio (R1)
Measures whether or not a company has enough resources to conduct economical activity and pay its debts in the next 12 months.
Own capital security ratio (R2)
Characterizes whether or not a company has enough own capital for financial stability.
As K1<2 and K2<0.1 (which are normative ratios), we calculate the solvency recovery ratio (R3) for the 6 months period.
Solvency recovery ratio (R3)
It shows whether or not a company has the ability to recover its solvency in a certain period of time (6 months).
If R3 is over 1, this indicates that the company has the real ability to recover its solvency. An in contrast, if R3 is less than 1, than the company doesn’t have the real ability to recover its solvency in near future.
Analysis of financial stability
| Ratio | 2004 | 2005 | 2006 |
| Autonomy ratio (R5) | 0,86 | 0,57 | 0,40 |
| Financial dependence ratio (R6) | 0,14 | 0,43 | 0,60 |
| Equity and liabilities ratio (R7) | 0,17 | 0,76 | 1,53 |
Autonomy
ratio (
R5)
It characterizes the part of owners of the company in the whole amount of capital used in financial and economical activities.
The decrease of R5 means that the company becomes less financially stable and more dependent from external credits.
Financial dependence ratio (R6)
Characterizes the part of total liabilities in the total amount of assets used in financial and economical activity.
The growth of R6 means the growth of borrowed capital for financing the enterprise.
Equity and liabilities ratio (R7)
Gives the most complete overview of the financial stability of a company. Its value, for example 0.17, means that for each ruble of own capital in total assets there are 0.17 rubles of borrowed capital.
The growth of R7 shows that the company is becoming more dependent from external credit and investors, and therefore, that the financial stability is falling.
Analysis of business activity
The business activity of the company characterizes the efficiency of the current activities and is connected with the effectiveness of using material, labour, and financial resources of the company, as well as with the turnover ratios.
| Ratio | 2004 | 2005 | 2006 |
| Productivity of work | 1669,4 | 1752,2 | 1922,4 |
| Working capital turnover | 5,54 | 3,08 | 4,75 |
| Shareholder’s equity turnover | 2,08 | 1,34 | 0,77 |
| Asset turnover | 1,31 | 0,82 | 0,55 |
| Stock turnover | 6,28 | 5,35 | 4,28 |
| Accounts receivable turnover | 39 | 99 | 86 |
Analysis of profitability
One of the most important results of company’s activity for the current period is the profitability ratio, which is calculated as a quotient of received profits and expenses on gaining these profits.
| Ratio | 2004 | 2005 | 2006 |
| Sales profitability, % | 16,81 | 15,02 | 14,24 |
| Shareholder’s equity profitability, % | 25,81 | 21,63 | 19,86 |
Conclusion
Based on conducted analysis several conclusions can be made. OJSC “Kazanorgsintez” has been developing constantly and actively for the last three years: construction of new plants is organized, and as a result in future we will be able to see a wider range of production nomenclature and sales market. Also an annual growth of revenues and profits is shown by the company.
Nevertheless, some negative tendencies are presented as well. A huge amount of borrowed capital has been taken by the company to build those new plants. And therefore the financial independence of the company is in danger. Expenses of the company are in the negative area as well, because these expenses are growing in larger percentage than the gained revenues.
Thus, to make a conclusion of all the above, we can say, that OJSC “Kazanorgsintez” is a prospective company, although they need to have a strict control over their financial flows to save their stability.
References
1. A. Kinserdal “Basic accounting understanding” Bergen, 2003.
2. O. Efremova “The analysis of financial statements” Moscow, 2004.
3. Official web-site of OJSC “Kazanorgsintez” www.kazanorgsintez.ru.
4. “Financial analysis” http://en.wikipedia.org/wiki/Financial_analysis.
5. Participant course materials “Financial analysis” CGAP.
6. “Financial analysis revised”.
7. “Financial statement analysis method” http://www.associatedcontent.com.
