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Kaunas University of Technology, Lithuania
Lukas Giriunas, assistant, ph.d. of of economics
Romualdas Valkauskas, senior research associate, ph.d. of of economics, associate professor
Vilnius University, Lithuania
Championship participant: the National Research Analytics Championship - "Lithuania";
the Open European-Asian Research Analytics Championship;
In order to assess the organizations financial status is the major challenge of current assets and is in the cost analysis. Current assets are one of the major organizations of the financial condition and performance indicators to measure and it costs for modeling is becoming increasingly important in the field of financial analysis. The innovative analysis of usage of current assets of the company is one of the main tasks of analysis of financial reports of the company for the purpose of evaluation of the company’s financial condition and activity.The scientific research – project revealed that there have not been prepared any assessment modes or methodologies, which would allow assessing the usage of current assets and analyze it, thus the purpose of this research is to determine the theoretical aspects and prepare the methodology of analysis of usage or loan use of company’s short-term assets, which would help the company’s management to determine the changes in current assets and its usage, their determinants and reasons. The innovative methodology of analysis of usage of the company’s current assets is formed following the quantitative and statistical methods, for example regression analysis. The theoretical assessment methodology was formed, which can be quite easily adapted by scientists, managers of the companies or other interested persons in the company’s financial practice or activity’s analysis.
Keywords: current assets, innovative methodology of assessment, assessment of financial reports, regression analysis.
It is no longer enough to apply double entry, record all business transactions and economic events at acquisition cost in company accounts but it is necessary to apply other methods for provision of true and correct financial condition and operating results, cash flows. One of these ways is analysis of the use of current assets but in this area, scientists have not yet carried out the specific research, created a methodology for evaluation. Therefore, it is important not only prepare company current assets use innovative methodology analysis with the help of scientific research-project but also highlight its practical application. In this case, in order to evaluate the company's financial condition and results of operations as it is provided [1, 2, 3] it should be emphasized that such evaluation is important as for the company's management seeking to develop a successful business and improve as well for potential investors seeking successful and profitable investments and for existing shareholders.
But in order to determine value of current assets usage or necessity firstly it is necessary to identify the current assets. Current assets is one of the major, in relative terms, elements of financial statements, therefore its analysis and its usage demand is completely natural and understandable. Moreover, without current assets any company's activities are impossible. Despite the fact that asset assignment to current defines and determines business accounting standards but many scientists describe the term of current asset differently . An opinion exists that assigning assets to long-term or current it is important to evaluate not only so emphasized time factor but also value of the assets because only linking those particular factors together we will be able to evaluate what assets in financial accounting is determined to current. But it should be emphasized that the assets is provided to be current not in calendar but in economic terms so it basically consists of four groups:
1. Stocks and ongoing contracts whichis still divided into:
2. Receivables within one year (customers’ debts; called but not paid-up capital; other debts).
3. Investments and term deposits (own shares; other investments and term deposits).
4. Cash at bank account and in cash.
Taking generally, basic innovative evaluation methodology of current assets in expression of matrix may be provided in this way:
In the provided dependence CA current assets tagging is introduced. So introducing mathematical signs we may notice that we have multivariate additive type innovative methodology linking all current assets components. This methodology is particularly advantageous even for solution of some tasks at once:
For the purposes of deepening company‘s financial condition evaluation we can see in the other calculations reflecting mathematical comparative indicators evaluation actions, way. As the analysis of financial reporting practices shows usually the most part of the analyzed current assets consist of the stock stored at that time . Their turnaround acceleration improves the performance of the company, i.e. the higher stocks turnover the more effective not only stocks management but also sales increasing which again suggests greater profitability of the company . On the other hand, the cost components of current assets can be rational or irrational and in generalized case and the specific form of the relative rate will help to identify this – current assets costs which can be calculated from the formula:
M – total cost (stock),
q – products (goods, products, services) amount (might be another company business - economic and financial performance indicator, for example sales or profit) or direct activities result.
Taking into consideration thatstock range can be quite extensive then in the presented fourth formula M component takes on a new tone and is expressed as the sum of new variables:
xj – j current assets component type, (j = 1,2,...,n) .
Except and identified the type of components of current assets in the company then we may supplement and write down the provided fourth formula:
Company incurred costs and the partial efficiency and the successful development is inextricably linked by two factors. The latter are the key elements whichare concerned not only with company directors or shareholders but also for potential investors. Therefore, in terms of valued economic - commercial practices it is important to determine m and q elements analysis limits anticipated m level together evaluating M scope. If you take the assumption that m is q function then in further calculations we may rely on regression analysis . As there is significant correlations case in general, the regression equation can be written as:
Precisely this application of the method of regression analysis in this research – project is unique and capable to carry out further tests and composed current assets various components identification and the recent evaluation is one of the main elements of the development of the research.
The proposed innovative analysis methodology of usage of current assets may show how effectively the used in company activities assets are managed. For example, if the materials have a low turnover in the company and their quantity in stock are very big and the composed methodology will let to evaluate it and affirm that poorly controlled amounts of orders and often production capacity. And this leads to smaller cash flows which can be used for company investment or development of other financial activities. The created innovative evaluation methodology also will let to evaluate also current assets analysis usage efficiency and there will be possibility to solve not only about current assets of the company usage but also about carried out activities and management effectiveness.