Optimization of the company's cash flow

ANNUAL SALES H.T / NET FIXED ASSETS And
ANNUAL SALES H.T / ASSETS OF BEARING WHICH ARE INTERPRETED IN A SIMILAR WAY.
However, the balance sheet where you pull the data necessary for the construction of all of these ratios is a static
document that mask changes in activity that may occur during the period. This observation led us to discuss the
limitations of ratios.
B - LIMITATIONS OF THE METHOD OF THE RATIOS IN THE ASSESSMENT OF FINANCIAL SECURITY.
In France, the method of ratios is very widely used. Known precautions to be taken during calculations:
Rules for evaluating the positions laid down in advance; -do compare really comparable activities;
Calculations always at the same dates;
Take into account in the interpretation of currency depreciation.
It is also known that a ratio taken individually presents only little interest. These are usually comparative studies of
'batteries' of ratios which are realized:
Considering the evolution of the results in time or compared with other undertakings;
By comparing ratios-goals, means of the same industry ratios, or ratios-standards.
However, an analysis of the financial equilibrium in terms of ratios is facing a series of difficulties that restrict the
scope. These difficulties arise at the level of the functions that it claims assume: description, explanation, and
standard, forecast.
1 - THE LIMITS OF THE DESCRIPTIVE VALUE METHOD OF RATIOS.
Ratios reflect only imperfectly the economic reality. We have already pointed out, they have defects in the balance
sheet where you pull information critical to their development: asset turnover, debts in the short term, customers,
suppliers, etc. The balance sheet describes the turnover of the company at any given time and can account for
changes in activity during the year. It does not even represent a middle state but a particular State of the conduct of
the operation. This defect is less sensitive in the case where the company has a fairly regular activity. But are there
many companies experiencing no period peak or by their slowdown? The realization of a monthly balance sheet
redressing this problem. But such work is not within the reach of all companies
In addition, the balance sheet is a document that adds monetary units to different purchasing power. In periods of
significant changes in the value of the currency, the ratios lose much of their meaning. Finally, the assessment is
before all a tax account, and one can wonder about the economic value of the information it gives.
2 - THE LIMITS OF THE EXPLANATORY VALUE OF THE METHOD OF RATIOS.
The interpretation of ratios is always difficult because the obtained reports show what happened, and not why. In
addition, changes in the value of a ratio is likely to come either from the variation of the numerator or the
denominator; the same value ratios represent frequently situations economically or financially very dissimilar, or, on
the other hand, the change in the value of a ratio may occur although the gap between its constituent elements
remained constant. Where the idea of group ratios according to a certain logic which would facilitate their
interpretation.
Pyramid analysis is a technique for the study of the causes of the evolution of a determined situation. The principle
of this type of analysis is to introduce the interdependence of the results brought by the ratios and lead to an
explanation beyond the simple observation. Such an approach is an interesting way to use the method of the ratios.
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