Diagnose business financial health

MEANING OF DIAGNOSING BUSINESS FINANCIAL HEALTH
 
♦ For a business to operate safely, sustainably, and thrive in the long term, it must establish a robust financial foundation.
♦ Assessing the financial health of a business is akin to conducting a general health examination for an individual, making it an invaluable action for the organization.
♦ Diagnosing business financial health is an act of assessing the current situation and taking timely measures to maintain, improve and ensure financial security for businesses through methods of calculating, measuring and analyzing financial indicators.
♦ The accuracy of diagnosis depends on the tool and the expertise of the individual using it.
♦ Hence, ICMA is very eager and confident in its ability to support businesses.


FINANCIAL INDICATORS
There are 6 groups of financial indicators:
• Group I – Solvency 
• Group II - Asset structure - capital sources
• Group III - Operational performance
• Group IV - Operational efficiency
• Group V - Growth potential
• Group VI - Cash flow assessment


SOLVENCY
CURRENT RATIO (CR)
♦ Meaning⇒ Does the business have the ability to pay current liabilities with its current assets?

 

♦ Normal health when: 1 < CR < 2

QUICK RATIO (QR)
♦ Meaning⇒ Does the business have the ability to pay current liabilities with existing its current assets without having to sell inventory?
    


♦ Normal health when: QR > 1
CASH RATIO
♦ Meaning ⇒ Does the enterprise have the ability to pay current liabilities with its cash and cash equivalents?
 


♦ Normal health when: 0.5 < Cash Ratio < 1


ASSET STRUCTURE - CAPITAL RESOURCES
OVERALL DEBT RATIO (D/C)
♦ Meaning⇒ Measures the extent to which a business uses liabilities to finance total assets.
♦ Normal health when: 0.5 < D/C < 1

DEBT TO EQUITY RATIO (D/E)
♦ Meaning⇒ Measures the ratio between two basic sources of capital (liabilities and equity) that a business uses to finance its operations.
♦ Normal health when: 0.5 < D/E < 1

 

 


OPERATIONAL PERFORMANCE
AVERAGE DAYS OF INVENTORY (DIO)
♦ Meaning⇒ Indicates how quickly inventory is transformed at a business compared to other units in the same industry or compared to the industry average.
 

AVERAGE COLLECTION PERIOD (DSO)
♦ Meaning⇒ Indicates how many days it takes on average for a business to collect its receivables.
 

 

AVERAGE PAYMENT PERIOD (DPO)
♦ Meaning⇒ Indicates how many days it takes on average for a business to pay its payables.

 

WORKING CAPITAL TURNOVER (DWC)
♦ Meaning⇒ Indicates how many days it takes a business to convert working capital into revenue.


♦ To evaluate the above indicators, it is necessary to compare them with the corresponding industry average.
♦ Normal health when indicators are equivalent to or higher than the industry average.


OPERATIONAL EFFICIENCY
PROFIT MARGIN ON REVENUE (ROS)
♦ Meaning⇒ Indicates how much profit a business earns for 100 VND in revenue.

♦ Normal health when: ROS > 0 or ROS > industry average ROS.
 

 

RETURN ON EQUITY RATIO (ROE)
♦ Meaning⇒ Indicates how many VND of after-tax profit a business earns with 100 VND of equity invested.
♦ Normal health when: ROE > industry average ROE.

 


RETURN ON ASSET RATIO (ROA)
♦ Meaning⇒ Indicates how much profit after tax a business can generate with 100 VND of first investment assets.
♦ Normal health when: ROA > industry average ROA.

 

 


GROWTH CAPACITY
REVENUE GROWTH RATE
♦ Meaning⇒ Indicates the rate of change in annual revenue of the enterprise. This growth rate measures the declining or expanding trend of sales.
♦ Normal health when: This year's revenue growth rate > Last year's revenue growth rate.

PROFIT GROWTH RATE
♦ Meaning⇒ Indicates the rate of change in the annual profit of the business. This growth rate measures the recessionary or expanding trend of profits.
♦ Normal health when: This year's profit growth rate > Last year's profit growth rate.

CASH FLOW EVALUATION

♦ Meaning⇒ Indicates the ability to generate cash from the main business activities of the business.
♦ Net cash flow from business activities = Cash inflow from operating activities


IMPLEMENTATION PROCESS

 


CONTACT INFO

With the above benefits, we hope customers will feel more secure and satisfied when experiencing services at ICMA.

For more details, please contact us:

Nguyen Cong Hiep (Mr.) - General Director

Phone: 0908 173 769

Email: hiep.nc@icma.com.vn

Address: 65 Pham Ngoc Thach, Vo Thi Sau Ward, District 3, Ho Chi Minh City

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