Current assets
CURRENT ASSETS STRUCTURE AND
EXPLORATION OF BUSINESS IN LATVIA
In order to ensure the financial sustainability of companies
under current economic conditions successful management of current assets is
crucial. In practice it is quite often observed
that the decisions of current assets management in companies are make in the
short-term aspects not making analysis. The aim of the article is
to explore and analyse the structure of current assets and their indicators in
business in Latvia. In order to reach the aim the author solves the following
tasks in the research: to explore and analyse the structure of current assets,
its changes and trends in the companies of Latvia; to perform calculations and
analysis of the indicators characterizing the effectiveness of current
assets; basing on the analysis to evaluate the development tendencies of
the structure and indicators of current assets at various stages of economic
development and to determine the correlations between these indicators. The research
is based on the data obtained by the Central Statistics Bureau. The research
covers the period of 1995–2010. The research is based on the analysis and
evaluation of special literature and scientific publications about current
assets management; research involves the use of generally accepted economic and
statistical analysis methods, logically-constructive method of qualitative
research methods: monographic method, Latvian and foreign industry literature,
legislation content analysis, quantitative research methods: economic
statistics and financial analysis techniques using Microsoft Excel software,
data graphical display techniques. The article is focused on the
exploration and analysis of the Latvian statistical data describing the amount,
structure of current assets in business and its changes at various stages of
economic development. Performing the analysis of current assets in the national
economy of Latvia in general there are calculated and analysed various
indicators, for example, liquidity, turnover of current assets, working
capital. The research does not deal with the
analysis of current assets in the aspect of branches. The
calculations let estimate the changes of these indicators and their
correlations as well as trends in the companies of Latvia. The current assets
of companies in Latvia, their structure and indicators to a large extent are
influenced by the economic situation in Latvia. Under conditions of a stable
and flourishing economic situation companies have stable development indicating
balanced increase of financial indicators. Upon increase of net turnover the
amount of current assets also increases. When the national economy and business
indicators improve, the proportion of assets flexibly reacts by increasing the
proportion of current assets in the total structure of assets. However, when
business activity decreases, the proportion of assets in the total structure of
assets reduces. As a result of analysis there can be observed a correlation
that the amount of stock and debts of debtors are interrelated with the net
turnover of companies. The dynamics of cash and short-term securities shows
that in the economic recession period it even increases. The economic situation
in the state does not change very significantly the indicators of the current
assets structure. Slight changes in the proportion of stock and cash prove that
under condition of recession the managerial staff of Latvian companies pays
attention to introduction of effective current assets management. The changes of
current assets and their decrease in the recession period indicate that
economic processes influence this indicator. The analysis of liquidity
indicators did not reflect significant correlation between economy and changes
of these indicators; however, the companies of Latvia typically do not have
high liquidity indicators which shows some problems, but which cannot be
identified not knowing certain conditions. The analysis of the structure and
indicators of current assets use a maximally longer period of time enables to
make timely and effective managerial decisions.
Fixed assets
Also known as a non-current
asset or as property, plant, and equipment (PP&E), is a term
used in accounting for assets and property which cannot easily be converted
intocash. This can be compared with current assets such as cash or bank
accounts, which are described as liquid assets. In most cases, only tangible
assets are referred to as fixed.
Moreover, a fixed/non-current asset
can also be defined as an asset not directly sold to a firm's
consumers/end-users. As an example, a baking firm's current assets would be its
inventory (in this case, flour, yeast, etc.), the value of sales owed to the
firm via credit (i.e. debtors or accounts receivable), cash held in the bank,
etc. Its non-current assets would be the oven used to bake bread, motor
vehicles used to transport deliveries, cash registers used to handle cash payments,
etc. Each aforementioned non-current asset is not sold directly to consumers.
These are items of value which the
organization has bought and will use for an extended period of time; fixed
assets normally include items such as land and buildings, motor vehicles, furniture,office equipment, computers, fixtures and fittings, and plant
and machinery. These often receive favorable tax
treatment (depreciation allowance)
over short-term assets. According to International
Accounting Standard (IAS) 16, Fixed Assets are assets whose
future economic benefit is probable to flow into the entity, whose cost can be
measured reliably.
It is pertinent to note that the
cost of a fixed asset is its purchase price, including import duties and other
deductible trade discounts and rebates. In addition, cost attributable to
bringing and installing the asset in its needed location and the initial
estimate of dismantling and removing the item if they are eventually no longer
needed on the location.
The primary objective of a business
entity is to make profit and increase the wealth of its owners. In the
attainment of this objective it is required that the management will exercise
due care and diligence in applying the basic accounting concept of “Matching
Concept”. Matching concept is simply matching the expenses of a period against
the revenues of the same period.
The use of assets in the generation
of revenue is usually more than a year- that is
long term. It is therefore obligatory that in order to accurately determine the
net income or profit for a period depreciation is charged on the total value of
asset that contributed to the revenue for the period in consideration and
charge against the same revenue of the same period. This is essential in the
prudent reporting of the net revenue for the entity in the period.
Net book value of an asset is
basically the difference between the historical cost of that asset and its
associated depreciation. From the foregoing, it is apparent that in order to
report a true and fair position of the financial jurisprudence of an entity it
is relatable to record and report the value of fixed assets at its net book
value. Apart from the fact that it is enshrined in Standard Accounting
Statement (SAS) 3 and IAS 16 that value of asset should be carried at the net
book value, it is the best way of consciously presenting the value of assets to
the owners of the business and potential investor.
Long-Term Debt
Samsung Returns to Long-Term Debt Market
SEOUL—Samsung Electronics Co. said
Monday it asked bankers to help it raise $1 billion in a bond offering, the
first time since 1997 that the manufacturer has turned to the long-term debt
market to pay for expansion. Samsung has been able to pay for tens of
billions of dollars in new factories with its own cash flow—solidifying the
South Korean company's dominant role in computer memory chips as the company
became a leading maker of two other products that required huge capital
outlays: flash memory and liquid-crystal displays. Though Samsung decline
to say specifically how it will use the money, the bond issue is a sign that
the company's capacity to stay at the head of all its capital-intensive
industries with its own money might be nearing an end. Capital spending last
year by Samsung—the world's largest technology manufacturer by revenue, with
sales of about $142 billion—came to $20 billion. In addition to keeping its
manufacturing lines up to date in existing component businesses, Samsung in the
past two years rapidly increased spending on factories for logic chips,
particularly application processors and sensors used in smartphones, digital
cameras and tablet computers. Next week the company is scheduled to
announce capital-spending plans for this year, and some analysts said they
expect outlays on logic chips to exceed those for memory chips for the first
time. Samsung send
out a request for proposals to investment banks for the bond offering last week.
It is expected to select lead managers after the Lunar New Year holiday, which
ends on Jan. 24. A spokesman for Samsung called the bond issue "a
strategic decision that serves our business interest" and repeated
previous statements that the company expects capital spending this year to be
greater than in 2011. The bond will be issued through the company's U.S.
subsidiary, suggesting a willingness by Samsung to undergo a more stringent
rating process than it would face at home—and, as a result, attract more
investors. At just $1 billion, the bond issue won't cover the cost of a new
chip or display factory, which can cost from $5 billion to $10 billion. But it
is a healthy size for testing the appetite for Samsung bonds after the
company's long absence from the market, analysts said. A spokesman for Samsung
said executives decided to issue a bond partly in expectation of paying a lower
interest rate than the company would face with the short-term instruments on
which it has relied heavily in recent years
Long-Term Debt Management
Borrow to undertake capital projects
can help an organization grow. But, if not done properly, it can kill one. Consider the true stories of two organizations.
University A’s strategic plan called
for doubling its student population over 15 years. Marketing surveys indicated
that it was at a competitive disadvantage because key student support
facilities were either nonexistent or outdated. With a weak development office,
it had no choice but to borrow. It issued tax-exempt bonds at favorable rates
and it achieved its enrollment growth goal. Human Services Agency B had no
strategic plan. It wanted to buy a headquarters building to save on property
taxes. It bought a building with three times more floor area than it had been
renting with money borrowed from a bank at market rates. It expected to lose
money until it was able to expand program activity, but it did not expand and
eventually it was forced out of business through merger. What can we learn from
these examples? Have a plan based on market surveys or other credible
information explicitly linking borrowed resources with specific outputs, and
never borrow without adequate cash flow to support debt service (principal and
interest). Before you borrow, analyze the impact the new debt will have on your
organization’s financial health. To make the
discussion concrete, assume new borrow is use to acquire a building. With no down payment, there will be a new asset
on your balance sheet (the building) but also a new liability of equal size
(the debt). A down payment reduces the borrowed principal, but it also reduces
the cash on your balance sheet. Either way, there is no change in your net assets
as a direct and immediate result of borrowing. Things go down hill from here.
Over the life of the loan, the value of the building on your financial
statements will gradually melt away, and net assets will decrease unless the
new building generates revenue or reduces expenses in excess of interest and
depreciation – an accounting construct that describes how fast you are
consuming, or using up, the building you just bought. This was Agency B’s
problem: its new building did not help it to produce new revenue. Interest
payments alone exceeded property tax savings. If you are thinking about
borrowing, it is important to understand your creditors. Before lending, they
will look at the relationship between various numbers on your financial
statements. This article will serve as an introduction to the techniques they
use to size you up. You should analyze your situation as they would. Your
creditors’ first concern is getting their principal back, with interest, on an
agreed-upon schedule. They have first claim on revenue, but they are mindful
that financially strapped organizations occasionally succumb to the temptation
to suspend debt service payments. You must convince them that your current cash
flow is sufficient to service the debt you propose to undertake, and you have a
sufficient financial cushion in case of an unforeseen reversal of fortune.
Creditors want assurance that (1) the borrower’s historical operating surplus
is sufficient to support debt service and (2) the borrower has enough net
assets to provide a cushion in the event of a sudden, unanticipated drop in
revenue. The size of the cushion determines the borrower’s debt capacity, or
the maximum amount it can borrow. This article draws upon the experiences that
Standard & Poor’s (S&P) and Moody’s Investors Service have had rating
the creditworthiness of nonprofit bond issuers, i.e. borrowers. Consider debt
capacity first. S&P wants the sum of unrestricted net assets and
temporarily restricted net assets to be at least three months of average annual
operating expenses (not counting depreciation), although it would prefer to see
something in excess of six months. Another measure of debt capacity is the
debt-to-equity ratio. S&P wants total debt, including the new borrowing, to
be no greater than half of the sum of unrestricted net assets and temporarily
restricted net assets minus the equity in physical assets, which are illiquid
and unavailable to service debt should operating losses occur. The next
question is whether operating surplus will be sufficient to make principal and
interest payments. S&P wants a borrower’s operating surplus plus
depreciation to be at least twice its projected debt service. The multiple is
called coverage. Three is good, and five is excellent. Operating income
excludes donations that are permanently restricted or appear to be
nonrecurring. Moody’s also excludes one-time items from expenses. If the
borrower has significant investment income, S&P includes interest income
and realized capital gains on investment in the calculation of operating
surplus, provided the total does not exceed the organization’s policy on
spending investment income. Moody’s, on the other hand, simply counts 5 percent
of an organization’s cash, investments and endowment as operating income.
Moody’s Investors Service considers similar factors, but it is also very
interested in the ratio of operating surplus to operating revenue, a concept
called operating margin. It does not set a minimum for each factor. Median
operating margins for Moody’s rated debt in categories of different investment
quality varies between 0.4% and 4.1%. Median coverage ranges from 2 to 3.
Median debt-to-equity ratios range from 1.5 to 0.12. Creditors favor
organizations with a strong source of earned income, such as admissions and ticket
sales, that enjoy a secure market niche because they are in a good position to
raise their prices to support debt service, if necessary. Once you decide
whether and how much to borrow, the next question is: borrow from a bank or
issue bonds? All nonprofit organizations are able to borrow in the public bond
market, but only 501(c)(3)s can team up with state and local governments to
issue bonds that are exempt from federal income taxes. The bonds can be secured
either with a physical asset, revenues generated by the project, or simply the
“full faith and credit” of the issuer. In any case, 501(c)(3)s can achieve
substantial savings in interest costs. Under current market conditions savings
are unusually modest, but they are likely to improve as market rates rise, as
most experts expect. There are issuance costs associated with bond transactions
so, if the principal is less than a few million dollars, selling bonds in the
public market is not likely to be cost-effective. A private placement (when one
investor buys all of the bonds) or a bank loan is likely to be more efficient,
although interest payments on bank loans are not tax-exempt, and therefore bank
rates are higher. When it comes to taking on new debt, endowed 501(c)(3)s have
a tremendous advantage. Not only do they have a prodigious debt capacity, they
can actually make money by going into debt. To illustrate: assume a 501(c)(3)
has $100 million in unrestricted net assets, $7 million in cash and short-term
investments, and it wants to build a $3 million building. It could pay cash
but, if it issued tax-exempt bonds, it would earn a higher market rate on its
investments than it would pay on its bonded indebtedness. A difference of one
percentage point over 20 years would generate a net cash flow of $167,000 a
year. This example assumes fixed rate bonds, much like a conventional mortgage.
Although it is possible to issue bonds at variable interest rates, this is
probably unwise under current conditions because rates are at historic lows.
They are more likely to go up than down. Allowable purposes for tax-exempt debt
are: capital expenditure projects, reimbursing prior capital expenditures,
refinancing of prior debt, and working capital. These purposes can be combined
in one issue. Proceeds can reimburse money spent before they were issued only
if the issuer adopts a resolution officially expressing its intent to reimburse
such expenditures, and feasibility studies can be expensive. An “official
intent” resolution does not obligate an organization to undertake the specified
project, so adopting one should be the first order of business when thinking
about a capital expenditure project. The
Dos and Don’ts of borrowing are simple, Do not borrow to finance budget
deficits. Do not borrow unless you have a clear understanding of your growth
potential and how debt will help you fulfill that potential. Never borrow to
finance operating deficits. Do not borrow unless you have adequate capacity,
you can service the debt, and it will strengthen your balance sheet. Do issue
tax exempt bonds if you are a 501(c)(3), and if the principal is large enough.
Woods Bowman is Associate Professor of Public Service Management at DePaul
University in Chicago . He is also a member of the National Center on Nonprofit
Enterprise’s Research Advisory Network.
Short Term
Debt
Examples of Short Term Debt
While excess debt is detrimental to
the financial health of companies and individuals alike, access to credit is
usually considered a good thing. Access to credit lets
individuals buy things like a car or home, and pay for a child's college
education. Companies and governments issue
debt instruments, such as bonds and commercial paper, for current operating
expenses, and to fund growth or research and development. Debt obligations,
whether for individuals, companies, or governments, are usually classified as
either long-term or short-term, based on when they are expected to be paid off.
Simple Present :
1. (+) In practice it is quite often observed that
the decisions of current assets management in companies are make in the
short-term aspects make analysis
(-)
In practice it is not quite often observed that the decisions of current assets
management in companies are make in the short-term aspects make analysis
(?)
are in practice it is quite often observed that the decisions of current assets
management in companies make in the short-term aspects not make analysis.
2. (+) The research does deal with the analysis of
current assets in the aspect of branches
(-)
The research does not deal with the analysis of current assets in the aspect of
branches
(?)
does the research deal with the analysis of current assets in the aspect of
branches
3. (+)The primary objective of a business entity is to make profit and increase
the wealth of its owners
(-)
The primary objective of a
business entity is not to make profit and increase the wealth of its owners
(?)
does the primary objective of a
business entity is to make profit and increase the wealth of its owners
4. (+) Though Samsung decline to say specifically how it will use the money
(-)
Though Samsung decline to say specifically how it will not use the money
(?)
does though Samsung decline to say specifically how it will use the money
5. (+) Samsung send out a request for proposals to investment banks for the
bond offering last week
(-)
Samsung not send out a request for proposals to investment banks for the bond
offering last week
(?)
does Samsung send out a request for proposals to investment banks for the bond
offering last week
6. (+) To make the discussion concrete, assume new borrow is use to acquire
a building
(-)
To make the discussion concrete, assume new borrow is not use to acquire a
building
(?)
does To make the discussion concrete, assume new borrow is use to acquire a
building
7. (+) He is also a member of the
National Center on Nonprofit Enterprise Research Advisory Network.
(-) He
is not also a member of the National Center on Nonprofit Enterprise Research
Advisory Network.
(?) does he
is also a member of the National Center on Nonprofit Enterprise Research
Advisory Network.
8. (+) Access to credit lets individuals buy things like a car or home, and
pay for a child's college education
(-)
Access to credit lets individuals not buy things like a car or home, and pay
for a child's college education
(?) does
Access to credit lets individuals buy things like a car or home, and pay for a
child's college education
9. (+) Borrow to undertake capital projects can help an organization grow.
(-)
Borrow to undertake capital projects can not help an organization grow.
(?)
does Borrow to undertake capital projects can help an organization grow.
10. (+) Samsung
has been able to pay for tens of billions of dollars in new factories with its
own cash flow
(-)
Samsung has been able to pay for tens of billions of dollars in new factories
not with its own cash flow
(?)
does Samsung has been able to pay for tens of billions of dollars in new
factories with its own cash flow
Tidak ada komentar:
Posting Komentar